CONTRACTS 


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CONTRACTS 

IN 

ENGINEERING 


THE   INTERPRETATION    AND    WRITING   OF 

ENGINEERING-COMMERCIAL 

AGREEMENTS 


AN   ELEMENTARY  TEXT-BOOK  FOR   STUDENTS 

IN   ENGINEERING,   ENGINEERS,    CONTRACTORS 

AND   BUSINESS   MEN 


BY 

JAMES   IRWIN  TUCKER,  B.S.,  LL.B. 

ASSISTANT  PROFESSOR  OF  PUBLIC  ADMINISTRATION,  UNIVERSITY  OF  SOUTHERN 
CALIFORNIA;  FORMERLY  DIRECTOR  SCHOOL  OF  CIVIL  ENGINEERING.  UNIVER- 
SITY OF  OKLAHOMA;  AUTHOR,  "  THE  AMERICAN  ROAD,"  "OiL  VALUATION 
AND  TAXATION,"  AND  "SPECIAL  ASSESSMENTS  IN  CALIFORNIA." 

"  The  law  does  not  consist  of  particular  cases,  but 
of  general  principles  which  are  illustrated  and  ex- 
plained by  these  cases."  —  LORD  MANSFIELD. 


SECOND  EDITION 
FIFTEENTH  THOUSAND 


McGRAW-HILL    BOOK    COMPANY 

239  WEST  39TH  STREET,   NEW  YORK 
6    BOUVERIE   STREET,    LONDON,    E.    C. 

1931 


COPYRIGHT  BY 

JAMES  IRWIN  TUCKER 

1920,  1922 


Printed  in  U.  8.  A. 
The  Plimpton  Press  Norwood  Mass. 


PREFACE 

In  view  of  the  prefatory  form  of  Chapter  I,  extended  remarks 
are  not  desirable  here.  Yet  attention  is  directed  to  certain  points. 
The  author  believes  the  engineer  should  have  substantial  in- 
formation upon  many  legal  matters.  He  has  been  warned  and 
has  striven  against  leading  the  reader  or  student  to  infer  that  the 
services  of  legal  counsel  might  be  easily  dispensed  with.  The 
aim  has  been  to  enable  the  engineer  to  co-operate  efficiently  with 
lawyers,  and  to  appreciate  more  perfectly  the  need  for  their 
assistance. 

Reasons  for  Present  Undertaking.  —  The  first  reason  is  the 
belief  that  a  considerable  number  of  elementary  legal  principles 
should  be  stated  in  brief  compass  for  classroom  work.  In  the 
pressure  of  an  engineering  course  the  student  finds  that  he  can 
ill  afford  the  monumental  works  on  engineering  jurisprudence,  or 
if  he  does  so,  finds  himself  lost  in  attempting  their  use.  This  is 
due  to  their  tremendous  array  of  formidable  and  intricate  proposi- 
tions, —  or  what  appear  to  be  so  for  want  of  a  simple  and  brief 
statement  of  the -spirit  of  the  law  which  underlies  whole  groups  of 
cases.  Generally  he  has  no  one  to  state  the  guiding  principle  for 
him  —  a  thing  this  book  especially  aims  to  do. 

In  1908  the  author  was  asked  to  give  a  course  in  Contracts 
and  Specifications,  when,  and  in  subsequent  repetitions,  much 
of  the  present  material  was  prepared.  This  experience  indicated 
the  limits  of  the  ordinary  student's  information  upon  the  subject- 
matter —  it  also  proved  his  keen  interest  in  it.  The  experience 
also  indicated  what  could  be  done  in  the  time  generally  available 
for  this  subject  in  most  engineering  schools. 

Arrangement  as  a  Textbook.  —  In  outlining  the  various  topics, 
where  too  many  details  or  correlated  ideas  develop,  recourse  is 
had  to  Appendix  Notes.  The  best  students  as  well  as  non-legally 
trained  teachers  will  find  these  Notes  equally  valuable  with  the 
main  text;  but  the  average  student  will  be  able  to  get  continuity 
of  development  without  much  recourse  to  them.  The  free  use 
of  bold-face  type,  of  numbered  section  titles,  and  of  italics  makes 

v 


PREFACE 

the  book  more  valuable  for  reference.  A  comprehensive  index 
adds  to  its  value  for  purposes  of  reference.  Illustrations,  or  more 
extended  remarks  upon  the  principles,  have  been  shown,  so  far  as 
practicable,  in  fine  print. 

The  co-ordination,  or  subordination  of  topics  is  indicated  by 
the  type  faces  and  arrangement,  thus: 

Principal  divisions  of  the  text  appear  in  Roman  CAPITALS, 
located  at  the  center  of  the  page. 

The  secondary  divisions,  in  order  of  importance,  appear  in 
similar  type  at  the  side  of  the  page,  set  off  by  a  space  below. 

The  third  order  of  topics,  subordinate  to,  or  a  part  of  the 
second,  appear  similarly,  but  without  the  clear  space  below. 

The  fourth  rank  of  importance  is  indicated  by  black-face 
paragraph  headings,  and  the  fifth  by  paragraphs  in  fine  print. 

Topic  diagrams  appear  at  the  end  of  most  chapters,  showing 
clearly  the  correlation  of  subjects  treated.  These  should  receive 
earnest  study. 

For  teaching  purposes  extensive  lists  of  quiz-questions  and  problems  (about 
600  in  number)  have  been  introduced.  As  these  questions  are  addressed 
to  the  salient  features  of  the  subjects,  their  use  has  been  reported  as  a  great 
help  in  preparing  the  lesson,  both  in  time  saving  and  securing  concreteness. 
By  using  these  lists  the  author  has  been  able  to  get  highly  satisfactory  recita- 
tions from  a  class  of  twenty  in  about  thirty  minutes  time.  Each  student 
answered  two  questions  on  the  blackboard.  Then  the  teacher  corrected 
and  discussed  these  answers  with  the  class  sitting  as  a  "  committee  of  the 
whole."  This  plan  always  held  the  interest  of  the  students  and  provoked 
much  valuable  discussion  of  the  principles  involved. 

Length  of  Course.  —  If  three  periods  per  week  are  afforded  for  sixteen 
weeks  the  entire  book  should  be  covered  with  considerable  thoroughness. 
Current  specifications  and  contracts  might  then  be  studied  and  time  should 
be  taken  for  practice  in  trying  to  better  their  parts  by  rewriting  them.  There 
might  also  be  time  for  partially  solving  practical  problems  by  trying  to  write 
a  specification  to  cover  a  given  set  of  facts  —  the  laboratory  method  of 
studying  contracts,  as  some  one  has  called  it.  This  would  be  a  most  valuable 
field  for  co-operation  with  the  English  Department  of  the  School,  for  the 
problems  of  law,  of  engineering,  and  of  rhetoric  are  here  inextricably  inter- 
woven. 

Acknowledgments.  —  In  studying  the  technical  field  of  engi- 
neering contracts  and  specifications,  one  must  give  due  recognition 
to  the  pioneer  laborers,  Professors  J.  B.  Johnson  and  John  C.  Wait. 
From  the  little  volume  prepared  by  Waddell  and  Wait,  the  author 
has  gleaned  valuable  and  suggestive  matter.  He  is  greatly  in- 
debted for  many  valuable  suggestions  to  the  Hon.  Charles  Neal 
Barney,  of  Lynn,  Mass.,  and  to  Professor  Samuel  C.  Earle,  of  the 
Department  of  English  in  the  Engineering  School  at  Tufts  College. 

vi 


PREFACE 

Conclusion.  —  The  author  hopes  his  statements  of  law  may 
not  appear  dogmatic.  He  has  studied  and  quoted  recognized 
authorities,  though  doubtless  he  has  sometimes  slightly  but  un- 
wittingly misinterpreted  them.  He  warns  the  student  that 
he  may  elsewhere  find  statements  apparently  in  flat  contradic- 
tion to  those  made  here.  Perhaps  a  more  thorough  study  of 
the  situation  will  effect  a  reconciliation;  he  should  also  remember 
that  the  courts  in  different  States  often  hold  opposite  views  on 
a  given  point,  and  that  in  law  as  well  as  in  medicine,  the  doctors 
sometimes  disagree.  The  traditional  question  as  to  the  patient's 
fate  will  not  always  be  answered.  It  may  also  be  that  the  author's 
reasoning  from  the  established  principles  to  their  application 
under  modern  conditions  of  engineering  practice  may  sometimes 
have  gone  awry.  If  under  the  test  of  practice  the  engineer  or 
contractor  finds  the  arguments  will  not  stand  the  strain,  the 
author  acknowledges  in  advance  his  indebtedness  to  any  such 
persons  who  discover  and  will  inform  him  of  the  discrepancies. 


PREFACE    TO    SECOND    EDITION    (1920) 

Engineers  may  draw  many  vital  lessons  from  the  Great  War. 
Among  them  was  establishing  as  a  fact  the  practical  workability 
of  the  more  modern  forms  of  contract.  These  were  successfully 
used,  and  upon  a  vast  scale,  between  the  Government  and  private 
contractors  on  war  work.  Standard  contract  practice  may  be 
regarded  as  thus  measurably  advanced  during  the  war  period, 
and  important  precedents  were  thus  established.  The  significance 
and  applicability  of  these  facts  to  modern  conditions  is  sought 
to  be  thoroughly  established  in  the  second  edition  of  this  work. 

Considerable  elaboration  and  discussion  of  modern  contract 
forms  is  made,  therefore,  before  the  student  is  led  to  consider 
the  distinctly  legal  aspects  of  contracts  generally. 

J.  I.  T. 
Oklahoma  City,  Oklahoma. 


vu 


TABLE  OP  CONTENTS 

INTRODUCTION.  —  Business  study  for  engineers  —  Duties  of  engineer  — 
Duty  of  engineering  schools  —  Contracts  in  engineering-business  fields  — • 
Composition  —  Outline  of  contract  terms,  (p.  1.) 

CHAPTER  I.  BUSINESS  OF  CONTRACTING.  —  After-war  contracts  — 
Production  psychology  —  Contractor's  rights  —  Contract  types  —  Over- 
head—Profit, (p.  10.) 

CHAPTER  II.  CONTRACT  ESSENTIALS.  —  Practicable  and  equitable 
contracts  —  Why  unjust  contracts  exist  —  Necessity  for  recognizing 
common  law  essentials  in  all  contracts  —  Legal  rules  and  technical  terms 

—  Competent  parties  —  Lawful  subject  matter  —  Contracts  in  violation 
of  statutes  —  Contracts  opposed  to  the  common  law  —  Surety  bonds  — 
Contracts    opposed    to    public    policy  —  Consideration  —  Mutual    and 
gratuitous  promises  —  Agreement,  or  mutual  assent  —  Mistake  —  Mis- 
representation—  Fraud  —  Duress  —  About  eighty  questions  for  study, 
(p.  27.) 

CHAPTER  III.    DEVELOPMENT   OF   CONTRACT   PRINCIPLES.— 

Express  contracts  —  Offer  and  acceptance  —  Public  offers  —  Revocation 

—  Implied  contracts —  Illegal  contracts  cannot  be  implied  —  Conditional 
contracts  —  Conditions  precedent,  subsequent,  and  concurrent  —  Lan- 
guage in   creating   conditions  —  Construing,   or  interpreting   contracts 

—  Rules  of  construction  —  Relative  importance  of  the  parts  —  Argument 
for  clear  and  forceful  writing  —  Custom  and  Usage,  and  when  it  may  be 
claimed  —  Conflict    of    laws  —  Lex    loci    contractus,    etc.  —  Statutory 
regulations  encountered  —  DISCHARGE  of  contracts  —  Performance  — 
Specific  performance  —  Origin  of  equity,  and  scope  of  its  doctrines  — 
Tender  of  performance  —  Substantial  performance  —  Severable  contracts 

—  Summary  of  performance  —  Discharge  by  agreement  —  Modification 
and  alteration  —  Discharge  by  waiver  —  Accord  and  satisfaction  —  Al- 
terations —  Consideration  —  Discharge   by    alterations  —  Supplemental 
contracts  —  Extras  —  Importance  of  the  topic  —  Engineer  should  not 
have  too  arbitrary  power  to  decide  upon  extras  —  Argument  for  definite- 
ness  in   specifications  —  How   extras   arise  —  Practical   suggestions   on 
Extras  and  Payments  —  Modes  of  fixing  price  —  Discharge  by  payment 

—  Breach   in   general  —  Contractor   suspending  work  —  Remedies  for 
breach  —  Exoneration  —  Quantum     meruit  —  Quasi-contracts  —  Dam- 
ages—  Liquidated,  and  unliquidated  damages  and  penalties  —  Indirect 
damages  —  About  eighty  questions  for  study  and  review,     (p.  57.) 

ix 


TABLE   OF   CONTENTS 

CHAPTER  IV.   AGENCY,  TORT,  and  INDEPENDENT  CONTRACTOR. 

—  Definition  and  parties  to  agency  —  Rests  upon  contract  —  Creation  of 
agency  —  Scope  of  authority  —  Delegated  powers  —  Agency  by  implica- 
tion —  Ratification  —  Essentials  —  Undisclosed    principal  —  Benefits  — 
Assignment  of  contracts  —  Summary  of  agent's  authority  —  Duties  of 
agent  —  Instructions  —  Liability  to  third  persons  —  Engineer  as  agent  — 
TORTS  —  Relation  of  common  and  statute  law  —  Precedence  of  statutes 

—  Contract  and   tort   distinguished  —  Definition   of   tort  —  Proximate 
cause  —  Personal  responsibility  —  Justification  in  tort  —  Discharge  of 
tort  —  Trespass  —  Nuisance  —  Negligence  —  Engineer's  duty  as  to  neg- 
ligence —  Sources  of  liability  in  tort  —  Electrolysis  —  Explosives  —  Re- 
lation of  Torts  to  Agency  —  Test  questions  for  responsibility  —  Contract 
principles  involving  Torts  and  Agency  —  INDEPENDENT  CONTRAC- 
TOR —  Central  position  of  the  doctrine  —  Distinguished  from  "  master 
and  servant  "  —  To  create  the  status  is  aim  of  all  engineering  contracts  — 
Difficulties  in  contract-writing  —  Types  of  engineering  contracts  —  Ex- 
ceptions to  rule  of  liability  of  independent  contractor  —  Wait,  on  indem- 
nity  and   insurance    clauses  —  Relation   to    contract   writing  —  About 
seventy  questions  for  study  —  Seventy-five  questions  and  problems  for 
general  review  of  Chs.  II,  III,  and  IV.     (p.  99.) 

CHAPTER  V.  REAL  PROPERTY.  —  Land  defined  —  Materials  of  con- 
struction —  Trade  fixtures  —  Water  —  Ownership  in  subterranean  waters 

—  Ownership  in  surface  waters  —  Surface  drainage  into  water  courses  — 
Rights  of  municipalities  —  Water  courses  —  Sewage  disposal  into  streams 

—  Mill  privileges  —  ESTATES  in  land  —  Fee  simple  —  Lesser  estates  — 
Easements  —  Dominant  and  servient  estates  —  Party  walls —  Highway 
easements  —  Creation  and  extinction  of  easements  —  Modes  of  acquiring 
title  in  land  —  Estates  by  prescription  and  adverse  possession  —  Re- 
lation to  work  of  surveyors  —  Prescriptive  easements  —  Lateral  support 

—  Duty  of  contractor  regarding  it  —  Vertical  support  —  DEEDS  —  Es- 
sentials —  Parts  of  a  deed  —  Warranty  and  quit  claim  deeds  —  Examina- 
tion  of   titles  —  Deed    descriptions  —  Rules   of   construction  —  Monu- 
ments —  What    quantity    passes  —  Grant    includes    what  —  Trees  — 
Duties  of  surveyor  —  Highway  boundaries  —  Water  boundaries  —  Title 
by    accretion  —  Dedication  —  Eminent    domain  —  Condemnation    pro- 
ceedings —  By    whom    exercised  —  About    seventy-five    questions    and 
problems  on  law  of  Real  Property,     (p.  132.) 

CHAPTER  VI.    CONTRACTS  OF  ASSOCIATION.  —  CORPORATIONS 

—  Definition  and  types  —  Corporations  and  partnerships  compared  — 
Other  forms  of  association  —  Essentials  to  existence  of  corporation  — 
Theory  of  corporate  powers  —  Promotion  —  Subscription  —  Incorpora- 
tion—  Advantages  in  corporate  form  —  Construing  charter  —  Implied 
powers  —  Common    law    powers  —  Ultra    vires,    ancient    and    modern 
viewa  —  Status    of   ultra    vires    contract  —  Transaction    of   business  — 
Liability  in  tort  —  Dissolution  —  The  stockholder  —  Contract  of  mem- 
bership —  Kinds  of  stock  —  Stock-watering  —  Incidents  of  stock-owner- 

X 


TABLE    OF    CONTENTS 

ship  —  Liability  of  stockholders  —  Of  directors  —  Transferability  of 
stock  —  Stockholding  in  other  companies  —  Municipal  corporations  — 
Charter  powers  —  Liability  for  acts  of  its  servants  —  Debt  limits  — 
Liability  of  Municipality  in  tort  —  Duty  with  reference  to  streets  and 
sewers  —  PARTNERSHIP  —  Defined  —  Articles  —  Partnership  by  im- 
plication —  "  Holding  out  "  —  Test  for  partnership  existence  —  To  be 
distinguished  from  Agency  and  Joint-enterprises  —  Firm  name  —  Notice 

—  Dissolution  —  Wind-up  —  Final   accounting  —  Kinds   of  partners  — 
Partner's     powers  —  Implication     of     agency  —  Partner's     liability  — 
Termination  of  it  —  Partner's  interest  in  the  firm  —  Partner's  lien  — 
Recompense  —  Duties  —  Limited,  or  Special  partnerships  —  Their  use- 
fulness —  How    created  —  Risk    of    special    partner  —  Name  —  Joint- 
Stock  Companies  —  Status  explained  —  Powers  and  liabilities  of  mem- 
bers —  May   be   incorporated  —  Dissolution  —  About   sixty   questions, 
(p.  162.) 

CHAPTER  VII.     CONTRACTS  OF  SALE  AND  TRANSPORTATION.  — 

SALES  —  Definition  —  General  characteristics  —  Sales  by  non-owners  — 
Goods  not  in  existence  —  Statute  of  Frauds  —  Application  of  Statute  — 
Satisfying  the  Statute  —  Delivery  and  acceptance  —  Constructive  de- 
livery —  Binding  the  bargain  —  Memorandum  —  Effect  of  non-com- 
pliance —  When  does  title  pass?  —  Something  remaining  to  be  done  — 
Conditional  sales  —  Sales  on  approval  —  Unappropriated  goods  —  Jus 
disponendi  —  Stoppage  in  transitu  —  Duration  of  right  of  stoppage  — 
Effect  —  Seller's  lien  —  Other  remedies  of  unpaid  seller  —  Remedies  of 
buyer  —  Time  of  delivery  —  Illegality  and  fraud  —  Remedies  of  de- 
frauded party  —  Sales  to  defraud  creditors  —  Caveat  emptor  —  Tech- 
nical elements  of  fraud  —  Falsehoods,  or  reckless  statements  —  Repre- 
sentation and  warranty  —  Fraud  on  vendor  —  Delivery  —  Warranty  — 
Express  and  implied  warranties  —  Sales  by  sample  —  Delivery  —  Right 
to  examine  goods  —  Payment  —  Cash  and  credit  sales  —  CARRIERS  — 
Common  carriers  and  their  privileges  —  Facilities  —  Discrimination  — 
Liability,  and  "  excepted  "  risks  —  Fault  of  shipper  —  Delivery  by  car- 
rier —  Excuses  —  Bill  of  lading  —  Connecting  carriers  —  Carrier's  lien  — 
Conclusion  —  About  one  hundred  test  questions,  (p.  199.) 

CHAPTER  VIII.  NEGOTIABLE  PAPER.  —  Defined  —  Essentials  to  ne- 
gotiability—  Unconditional  written  promise  —  To  pay  definitely  —  To 
specified  person  —  Delivery  —  Who  can  make  negotiable  paper?  — 
Competency  to  contract  —  Corporations,  fiduciaries,  etc.  —  Signing  — 
Trade  names  —  Partner  —  Joint-signing  —  Fraudulently  —  Negligence 
of  signer  —  Holder  in  due  course  —  Intent  to  pass  title  by  delivery  — • 
Escrow  —  Maker's  liabilities  —  How  it  may  be  discharged  —  Dishonor 

—  Accommodation    paper  —  Consideration  —  Indorsement  —  Effect  — 
Kinds  of  indorsement  —  Indorser's  warranties  —  For  whose  benefit  — 
Modes    of    discharging    indorser  —  Presentment  —  Checks  —  Certified 
checks  —  Duty  of  bank  —  Protest  —  Bonds  —  Judgment  notes  —  Other 
paper  —  About  fifty  study  questions,     (p.  229.) 


TABLE    OF   CONTENTS 

CHAPTER  IX.  PREPARING  and  WRITING  ENGINEERING  CON- 
TRACTS. —  Introduction  —  Relation  of  commercial  to  engineering  con- 
tracts —  Engineer  and  lawyer  may  co-operate  —  Language  to  be  used  — 
Task  of  the  Court  —  Length  —  Repetition  of  exact  phrases  —  Purpose  in 
specification  writing  (is  an  art)  —  Engineer's  preparation  —  Waddell,  on 
mistakes  —  Engineering  contract-writer  must  be  well  grounded  on  busi- 
ness principles  —  Engineer's  duty  to  prevent  lawsuits  —  True  economy 
in  good  specifications  —  Covenants,  or  General  Clauses  —  Matters  treated 
in  them  —  Practical  conclusions  —  Elaborate  contracts  and  specifications 
must  be  systematically  planned  —  Incorporation  by  reference  —  Identi- 
fication of  document  incorporated  —  Physical  incorporation  —  Oral 
proof,  etc.  —  Practical  suggestions  for  General  Conditions  clauses  —  Work 
of  Committee  of  Amer.  Railway  Eng.  &  M.  W.  Assn.,  February,  1909, 
analyzed  and  discussed,  covering  such  topics  as  Scope  of  Contract,  Its 
Duration,  Measurement  of  Quantities,  Workmanship  and  Materials, 
Changes  and  Alterations,  Extras,  Contractor's  Risks  and  Obligations, 
Payments,  Disputes  and  Arbitration,  Powers  of  the  Engineer,  etc.,  etc., — 
Status  of  movement  for  uniform  General  Contract  forms  —  General  Con- 
ditions in  a  Building  Agreement  —  Suggestions  as  to  Checking  Docu- 
ments, Definitions,  Drawings,  Lines  and  Levels,  Materials  and  Work- 
manship, etc.,  etc.  —  SPECIFICATIONS  —  Are  a  part  of  the  contract- 
True  economy  in  good  ones  —  Reasons  for  imperfect  specifications — 
What  they  should  contain  —  Impracticable  requirements  —  Illustra- 
tions —  Why  interpretation  is  needed  —  Practical  hints  —  Movement 
toward  standard  clauses  discussed  —  Subdivisions  in  specifications  — 
Mode  of  studying  specifications  —  Note-book  analysis  only  practicable 
method  —  Conclusions  —  Summary  of  the  situation  —  Skeletons  of  im- 
portant examples  of  Contracts  and  Specifications,  such  as  Charles  River 
Dam  (Boston),  Grand  Central  Terminal  Improvement  (New  York),  are 
given,  (p.  252.) 

APPENDIX  NOTES.  —  1.  Legal  Aspects  of  Modern  Technical  Problems  — 
2.  Public  Policy  and  Arbitration  Clauses  —  3.  Public  Policy,  Railroad 
Passes,  etc.  —  4.  Implied  Contract  with  a  Condition  Precedent,  and  Illus- 
tration of  Implied  Condition  Precedent  —  5.  Time  Element  as  a  Condition 
Precedent  - —  6.  Statutory  Regulations  Encountered  in  Performance  — 
7.  Breach  by  Abandonment  —  8.  Indirect  Damages  —  9.  Liquidated 
Damages  —  10.  Electrolysis — 11.  Appropriation  of  Municipal  Water- 
Supply  —  12.  Lateral  Support,  and  Negligence  —  13.  Construing  Part- 
nership Articles  —  14.  Final  Accounting  in  Partnership  —  15.  Surety- 
ship — 17.  Objects  of  Specifications  — 18.  True  Economy  in  Good 
Specifications  — 19.  Political  Contracts  and  Trouble  Breeders  — 
21.  Intention  of  Parties  as  to  Passing  Title  —  22.  Advantages  in  Corpo- 
rate Form  of  Organization,  (p.  299.) 


Xll 


CONTBACTS  IN  ENGINEERING 


INTRODUCTION 

1.  Argument  for   Study  of  Business  by  Engineers.  —  The 

engineer's  scientific  training  teaches  him  to  deal  with  the  laws 
of  nature;  he  should  have  business  training  to  teach  him  how  to 
deal  with  men  and  money  and  the  laws  relating  thereto.  There 
are  certain  elements  of  the  "  common  law  "  and  general  business 
principles  which,  if  mastered  by  the  student  during  his  college 
course,  would  give  him  a  different  attitude  toward  his  profes- 
sion and  broaden  his  horizon.  Why  then  restrict  an  engineer's 
education  to  purely  scientific  subjects?  Why  not  expand  his 
horizon  to  enable  him  to  take  the  position  in  the  community 
which  his  technical  training  prepares  him  to  occupy?  In 
short,  a  business  training  should  develop  in  the  engineer  a  broad 
view  of  his  relations  to  other  professional  men  and  place  him 
in  a  position  to  engage  their  services  rather  than  to  act  as  their 
agent. 

This  Introduction  seeks  to  show  the  importance  of  a  thorough 
knowledge  of  contracts  to  those  engaged  in  business  and  engineer- 
ing practice.  Managerial  positions  of  importance  should  be 
properly  held  by  the  engineer  who  has  designed  the  works,  keeping 
clearly  in  mind  the  financial  sides  of  construction,  operation,  and 
maintenance,  as  well  as  by  some  other  person  who  has  had 
"  business  "  or  legal  training  only. 

It  is  estimated  that  about  half  of  the  American  Society  of 
Civil  Engineers  are  engaged  either  in  manufacturing  or  contract- 
ing, or  are  consulting  engineers.  These  are  fields  in  which  the 
business  element  is  of  prime  importance.  Results  equally  sig- 
nificant would  probably  be  obtained  in  an  investigation  of  the 
mechanical  and  electrical  engineering  professions. 

2.  "  The  engineer  is  frequently  the  tool  of  those  whose  aim  it  is  to  control 
men  and  to  profit  by  their  knowledge,  a  servant  where  he  should  be  a  master. 
He  should  be  a  manager.     It  should  not  be  considered  unprofessional  for 
an  engineer  to  be  a  capitalist,  and  take  his  proper  place  as  promoter  and 
organizer,  and  share  in  the  profits  of  engineering  enterprises." 

1 


§  t>  CONTKACTS 

"  He  has  not  reached  his  proper  rank  until  he  manages  as  well  as  designs 
and  supervises  engineering  works.  A  better  position  will  be  secured  when- 
ever an  engineer  makes  it  his  business  to  study  men  as  well  as  materials,  and 
to  use  men  as  he  does  machinery.  But  the  advancement  must  be  individual, 
by  fitting  one's  self  for  managerial  duties  and  '  making  good '  in  their  per- 
formance." (Presidential  Address  of  Onward  Bates,  Am.  Soc.  C.  E.,  1909.) 

3.  Engineers  are  often  chosen  for  administrative  positions  in 
large  corporations,  and  to  direct  great  enterprises.     In  the  evolu- 
tion of  corporate  life  there  are  frequent  changes,  and  transfers 
and  promotions  occur  every  few  months.     The  employee  familiar 
with  the  aspects  of  corporate  activity  must  thereby  be  benefited. 
Retiring  superintendents  and  managers  are  frequently  succeeded  by 
technically  trained  men  possessing  executive  ability.     Places  of  the 
highest  responsibility  are  recognized  as  properly  open  to  engineers, 
even  when  no  personal  engineering  duties  are  required  in  them. 

4.  The  study  of  cost  data  is  required  of  the  engineer  and  a 
store  of  technical  knowledge  is  by  no  means  all  that  is  needed 
to  make  him  fully  successful  in  his  profession.     In  order  to  con- 
vince  capitalists   and  official  boards   of  the  importance   of  his 
recommendations,  it  is  plain  that  he  must  talk  to  such  persons 
in  terms  that  they  can  readily  understand.     He  must  use  their 
language,  and  that  is  the  language  of  business.     Engineers  who 
have  employed  their  business  instincts  to  advantage  in  the  offices 
of  engineering  concerns  have  been  able  to  rise  to  higher  positions 
and  to  command  larger  salaries  than  those  who  have  confined 
themselves  to  purely  professional  activities. 

The  engineer  is  trained  in  logical  deduction  and  reasoning, 
is  thoroughly  grounded  in  rigid  scientific  principles,  and  taught 
to  think  consecutively.  He  should,  therefore,  obtain  results 
commensurate  with  those  of  the  business  man  if  he  applies  his 
logically  trained  mind  to  business  and  economic  problems  with  the 
same  diligence  that  he  exercises  in  his  purely  engineering  functions. 
For  even  the  so-called  "  business  man  "  frequently  has  had  no 
systematic  instruction  in  business,  but  has  absorbed  his  knowledge 
from  the  business  atmosphere  in  which  he  moves.  He  usually  does 
not  know  the  laws  of  business  but  only  its  usages  and  customs. 

5.  Duties  of  Engineer.  —  As  the  engineer  develops  and  gets 
away  from  purely  technical  routine  work,  he  must  draw  up  speci- 
fications, make  contracts,  hire  and  direct  labor,  and  report  on 
properties.     These  are  within  his  legitimate  field  as  at  present 
understood,  and  demand  that  he  should  have  a  knowledge  of  the 

2 


INTRODUCTION  §  8 

general  business  methods  of  the  community  in  which  he  lives, 
and  that  he  should  be  able  to  present  his  reports  in  such  a  way  as 
to  be  readily  understood  by  business  men.  He  should  know 
something  of  the  elements  of  contract  law,  of  stocks,  bonds, 
notes,  sales,  and  the  law  of  property  in  general,  of  agency,  tort 
(that  he  may  appreciate  the  general  theories  upon  which  the  law 
redresses  wrongs),  the  formation  of  partnerships,  and  of  cor- 
porations, and  the  general  laws  relating  thereto,  and  of  the  powers 
and  functions  of  the  various  corporation  officials.  These  are 
matters  of  which  the  general  principles  can  readily  be  acquired 
by  an  engineer  trained  to  study. 

6.  Duty  of  Engineering  Schools.  —  A  technical  school  which 
does  not  tell  its  undergraduates  how  to  do  business  safely  with 
business  men  slights  its  obligation  to  them.     A  fairly  extensive 
course  on  the  principles  of  business  law  can  be  given  without 
overburdening  the  student.     The  college  is  par  excellence  the 
place  for  the  inculcation  of  principles.     If  this  is  true  of  science, 
why  not  of  the  business  side  of  engineering? 

"  With  the  increasing  requirements  placed  upon  the  engineer, 
it  is  seldom  that  purely  technical  duties  fall  to  the  lot  of  the 
recent  graduate  in  engineering.  Certain  large  manufacturing 
plants  do  employ  pure  specialists,  but  in  the  engineering  world 
at  large,  business  training  is  quite  as  important  as  the  ability  to 
solve  differential  equations." 

7.  Engineering-Business  Fields.  —  A  field  obviously  suitable 
for  a  business  man  with  a  technical  training,  namely,  an  engineer 
with  some  knowledge  of  business  principles,  is  that  of  purchasing 
agent  for  a  corporation,  whether  it  be  a  railroad,  waterworks, 
electric  lighting  and  power  plant,  or  any  of  the  great  manu- 
facturing industries.     The  importance  of  scientific  knowledge  in 
such  positions  has  not  been  duly  recognized.     Apparently  the 
directors  of  many  corporations  have  not  been  aware  that  other 
qualifications  than  those  of  the  ordinary  business  man  are  neces- 
sary to  secure  the  highest  economy  in  the  purchase  of  materials, 
supplies,  and  machinery.     In  many  cases  such  purchase  has  con- 
sisted merely  of  accepting  the  lowest  bid  offered.     The  choice  of 
supplies  and  new  equipment  should  be  settled  upon  a  scientific 
basis  only,  if  the  greatest  economy  is  to  be  obtained. 

8.  An  engineer  should  be  well  qualified  to  sell  an  engineering 
product.    He  best  knows  wherein  it  excels  and  his  statement  of 

3 


§  9  CONTRACTS 

its  purposes  and  capacity  can  be  relied  upon  by  engineers,  who 
need  expert  argument.  In  the  employ  of  the  largest  manufactur- 
ing interests  there  are  many  engineering  salesmen,  agents,  do- 
mestic and  foreign  department  managers,  engineering  attorneys, 
and  even  corporation  presidents;  the  duties  of  all  of  these  persons 
are  chiefly  commercial  yet  thoroughly  interwoven  with  the  tech- 
nical elements  of  the  business.  Such  men  must  have,  therefore, 
business  equipment  and  training,  executive  personality,  and  the 
administrative  faculty,  in  addition  to  their  engineering  knowledge. 

Again,  growing  fields  in  engineering  are  those  of  expert  business 
systematizers,  organizers,  cost  accountants,  appraisers,  etc. 
Contracting  firms  and  engineering  offices  engaged  in  handling 
private,  railroad,  government,  and  municipal  contracts,  and  in 
consulting  work  have  too  often  failed  because  the  commercial  side 
of  their  practice  —  the  really  vital  side — -was  not  sufficiently 
developed  to  meet  the  demands  upon  it.  Men  were  needed  who 
were  distinctly  fitted  to  care  for  the  commercial  departments  and 
to  be,  at  the  same  time,  familiar  with  the  technical,  or  engineering 
routine  —  in  a  word,  "  Commercial  Engineers." 

9.  Present  Purpose.  —  An  endeavor  has  been  made  in  the 
present  work  to  supply  a  practical  course  showing  the  contractual 
basis  of  engineering  work  and  of  business  at  large  and  provide  a 
textbook  suitable  in  form  and  subject  matter  for  use  in  engineering 
schools  where  the  average  college  student  has  no  opportunity  for 
extended  study  of  legal  principles.  As  each  rule  of  law  is  studied, 
it  is  sought  by  frequent  repetition  and  allusion  to  drive  home  the 
meaning  of  certain  legal  theories  which  lie  at  the  root  of  our 
commercial  usages  and  customs,  introducing  so  far  as  necessary 
elementary  conceptions  from  the  leading  fields  of  the  common 
law.  It  is  aimed  to  present  such  facts  and  rules  as  seem  likely  to 
be  of  most  value  in  his  future  professional  and  business  career. 
To  properly  treat  of  the  engineer's  duties  it  is  necessary  to  deal 
somewhat  with  the  principles  of  agency,  tort,  and  of  real  property, 
since  these  bear  an  intimate  relation  to  his  work,  wholly  aside 
from  his  rights  and  obligations  arising  under  contracts  generally. 

Statements  herein  made  are  usually  in  general  terms,  since 
the  opportunity  is  lacking  to  illustrate  them  by  most  of  their 
particular  applications,  and  much  collateral  matter  which  would 
amplify  the  rules  stated  has  of  necessity  been  omitted.  The 
aim  throughout  has  been  to  quote  the  best  authorities  upon  the 

4 


INTRODUCTION  §  11 

several  subjects,  and  to  omit  the  statement  of  rules  which  are 
equivocal  in  their  application. 

"  Ignorance  of  the  law  excuses  no  one,"  is  a  phrase  worn  to 
triteness,  though  perhaps  few  laymen  recognize  the  sound  phil- 
osophy underlying  it.  Persons  of  technical  training  in  the  natural 
sciences  rarely  appreciate  the  existence  of  a  rigid  framework  of 
legal  principles  upon  and  around  which  all  the  affairs  of  our  com- 
plex civilization  are  built.  To  destroy  or  to  undermine  this  frame- 
work would  plunge  society  into  anarchy.  Said  in  another  way, 
there  is  a  right  and  legal  way  of  carrying  on  the  affairs  of  the 
business  world  —  to  contravene  it  is  to  invite  disaster. 

10.  Contracts   Underlie    Engineering   Business.  —  With   the 
growth  and  development  of  communities  the  need  of  structures  of 
diverse    and    complicated    character   arises.     These   are   mostly 
erected  by  contract  work.     In  theory  the  plans  and  specifications 
of  the  chief  engineer  indicate  with  sufficient  fullness  and  clearness 
all  requirements,  but  it  has  become  evident  that  the  contractor 
as  well  as  the  engineer  needs  technical  training.     The  contractor 
must  not  only  appreciate  the  technicalities  of  plans,  materials, 
and  processes  of  construction  but  also   the  legal  phases  of  his 
status,  lest  through  some  inadvertence  he  suffer  unreasonable 
hardship. 

Excellence  in  the  quality  of  materials  used  together  with  a 
high  degree  of  skill  required  in  carrying  out  modern  engineering 
works  of  magnitude  have  tended  to  cause  the  engineer  to  become 
a  contractor.  In  like  manner  the  contractor  has  found  it  necessary 
to  become  a  skilled  engineer.  This  is  as  it  should  be,  since  technical 
knowledge  and  professional  skill  have  become  essential  not  only 
for  the  design  of  work  and  the  elaboration  of  proper  specifications 
and  contracts,  but  also  for  the  production  of  materials  and  the 
proper  handling  of  them  in  construction.  Probably  no  better 
engineering  talent  or  experience  is  to  be  found  than  that  engaged 
by,  or  connected  with,  great  contracting  firms.  Great  plants  like 
those  bearing  the  names  Westinghouse,  Edison,  and  General 
Electric  are  contracting  establishments. 

11.  Contract    and    Specification    Writing.  —  To    understand 
the  meaning  of  construction  contracts,   and  certainly  to  write 
them  adequately,  it  is  necessary  to  understand  the  legal  or  con- 
tract theories  upon  which  they  are  founded,  the  contractual  or 
business  relations  of  all  the  persons  involved,  and  the  engineering 

5 


§  11  A  CONTRACTS 

methods  of  conducting  the  work  they  contemplate.  All  of  these 
facts,  as  well  as  the  design,  and  all  or  most  of  the  plans  are — - 
or  should  be  —  in  the  possession  of  the  writer  of  specifications 
when  he  begins  xhis  work.  When  written,  the  specifications  must 
also  be  interpreted  upon  the  broad  grounds  of  professional  in- 
telligence and  common  sense,  supported  by  mature  engineering 
experience  and  judgment.  (See  §  391,  et  seq.) 

11  A.  Business  Principles  and  Composition.  —  Engineers, 
educators,  and  business  men  agree  "  That  engineering  students 
be  required  to  pursue  courses  which  should  develop  their  business 
and  administrative  qualities.  These  courses  should  involve 
constant  and  continuous  training  in  the  use  of  English,  both  oral 
and  written." 

"  An  engineer  who  is  inarticulate  is  one  who  is  professionally 
incompetent.  If  he  cannot  convey  his  ideas  clearly  to  others, 
if  his  thoughts  are  locked  in  his  brain  simply  because  he  has  not 
the  ability  to  communicate  them,  any  man  suffers  under  a  handi- 
cap which  no  amount  of  professional  knowledge  can  possibly 
overcome." 

The  writing  of  contracts  and  specifications  with  clear  and 
unmistakable  expression  of  the  full  "  intention  of  the  parties  "  is 
an  unexcelled  practice  to  develop  both  business  knowledge  and 
facility  and  aptitude  in  expression. 

11  B.  Preparation  of  Contracts.  —  Public  and  private  con- 
struction works  observe  a  somewhat  different  procedure  with 
respect  to  legal  requirements  such  as  advertising,  awarding  the 
work,  or  other  measures  designed  to  protect  the  public  interest. 
On  public  work,  these  are  statutory  restrictions  (see  §  25  A),  com- 
pliance with  which  is  requisite  to  establish  the  full  validity  and 
effectiveness  of  the  contract.  But  in  private  contracts,  there 
is  neither  necessarily  advertisement  nor  competition.  Often  no 
writing,  even,  is  required  or  relied  up'on.  Furthermore,  as  the 
work  progresses,  modifications  of  the  plans,  or  any  adjustments 
that  may  appear  desirable  can  be  made  expeditiously  and  fairly 
upon  agreement  between  the  interested  parties.  Yet  though 
many  contracts  are  entered  into  and  fully  carried  out,  even  though 
containing  many  matters  not  wholly  legal,  this  does  not  excuse 
careless  work  in  the  preparation  of  contracts  and  specifications. 
The  developments  of  the  future  are  always  impossible  to  fore- 
see, and  nothing  of  importance  should  be  left  solely  to  the  con- 

6 


INTRODUCTION  §  11  C 

fidence,  good  faith,  friendliness,  or  good  fellowship  on  the  part  of 
any  one. 

The  preparations  for  receiving  bids,  and  the  contract  and 
specifications,  should  be  fair  and  impartial,  framed  to  discriminate 
against  no  worthy  person,  nor  to  cause  needless  expense  to  those 
desiring  to  submit  proposals.  The  specifications  should  be  ex- 
plicit and  in  detail,  containing  all  possible  information  which 
the  bidder  must  needs  know  in  order  to  bid  intelligently.  For 
every  uncertainty,  from  the  least  to  the  greatest,  he  must  add  a 
proportionate  sum  to  his  bid  to  cover  the  contingency.  (Definite 
suggestions  appear  in  §§  401,  409,  etc.) 

11  C.  Outline  of  Contract  Terms.  —  We  shall  now  present 
an  analysis  of  the  ideas  commonly  expressed,  in  the  so-called 
"  Covenants,"  "  General  Conditions,"  or  "  General  Clauses." 
(See  §§  401-402.)  Explicitness  is  essential  and  brevity  desirable 
when  compatible  with  clear  'understanding.  Fairness  and  just- 
ness must  be  exemplified.  Although  the  contract  is  usually  pre- 
pared by  or  for  the  owner,  and  in  contemplation  of  a  contractor 
then  unknown,  yet  if  not  reasonable  and  "  square  "  it  will  ulti- 
mately have  to  be  modified* to  become  so. 

Outline  of  AGREEMENT  (sometimes  called  "  The  Contract"). 

c: 

1.  Declaration   of   agreement,   names   of   parties,    and   their 
residences,  and  date  of  execution  of  contract,  as: 

"  This  agreement,  made  this  day  of  between 

and ,  of ,  WITNESSETH 

that:  (etc.)  " 

2.  Statement  of  consideration  on  both  sides,  reference  to  se- 
curity presented,  general  recital  of  work  to  be  undertaken,  includ- 
ing a  reference  to  plans,  specifications,  etc.,  defining  the  work. 

3.  Time  of  beginning  and   completing,   with  provisions  for 
Liquidated  Damages  (see  §  131),  if  any  are  intended,  and  reference 
to  manner  and  time  of  payments. 

4.  Definitions   of   terms,    phrases,    or   personal   titles   which 
appear  frequently  in  the  contract  or  specifications,  "  construing  " 
them  practically  to  remove  any  ambiguity  or  doubt  cast  upon 
the  "  real  "  intention  of  the  parties.     (See  §§  80-81.) 

5.  Rights  and  Duties  of  the  Parties.  —  (a)  The  Owner;   (6)  The 
Contractor;  (c)  The  Engineer. 

7 


§  11  D  CONTRACTS 

Under  (a),  the  Owner  has  the  right  to  enter  the  premises  occupied  by  the 
contractor,  to  inspect  and  supervise  in  a  general  way  the  progress  of  the 
work  he  is  paying  for,  and  is  naturally  bound  to  provide  in  advance  for  the 
real  estate  upon  which  the  structure  is  to  be  erected,  or  which  will  be  needed 
for  the  purposes  of  construction. 

He  does  not  have  the  right  to  make  changes  or  alterations  which  will 
materially  affect  the  work,  unless  specifically  agreed  to,  nor  order  extra  work 
without  having  to  pay  for  the  same,  preferably  in  the  manner  determined 
in  advance  by  the  contract.  The  owner  cannot  arbitrarily  insert  matters 
omitted  or  operations  not  specified,  under  a  clause  which  says  the  contract 
shall  include  anything  which  "  can  fairly  be  implied  as  included  in  the  con- 
tract." 

Under  (6),  the  Contractor  does  not  have  the  power  to  substitute  another 
in  his  place,  unless  an  assignment  or  sub-letting  has  been  specifically  agreed 
to.  He  must  either  give  the  work  his  personal  attention  (which  is  usually 
what  is  desired),  or  always  have  competent  and  duly  authorized  agents  or 
foremen  present  upon  the  work.  He  must  accept  responsibility  for  damages 
arising  through  his  negligence  (see  §  164),  or  that  of  his  agents,  and  must 
protect  his  client  against  claims  for  labor  and  materials  supplied  to  the  work, 
or  arising  through  infringement  of  patents  employed  by  him.  (See  Inde- 
pendent Contractor,  172.) 

He  cannot  abandon  his  contract  without  constituting  a  breach,  for 
which  he  will  be  liable  in  damages,  but  it,  is  not  uncommon  to  provide  that 
the  owner  may  make  use  of  his  plant  to  secure  completion.  He  may  be 
bound  to  make  a  stipulated  rate  of  progress,  and  to  suffer  the  retention  of 
"liquidated  damages  "  for  failure  to  do  so,  or  to  complete  on  time.  He 
should  also  be  offered  a  bonus  for  completion  ahead  of  the  time  set. 

He  may  properly  be  required  to  kesp  plans  and  specifications  on  the 
work,  to  suitably  protect  all  work  finished  by  him,  until  the  completion  and 
acceptance  of  the  whole,  to  remedy  defects  due  to  faulty  workmanship,  and 
to  furnish  construction  plant  suitable  in  quantity  and  kind  to  the  work  in 
hand. 

Under  (c),  it  will  be  the  general  duty  of  the  Engineer  to  supervise  and 
direct  the  work,  to  furnish  lines  and  grades,  make  estimates  of  cost  and 
quantities,  to  have  control  of  his  assistants  and  inspectors,  and  subject  their 
findings  to  his  reviewal  when  necessary,  to  determine  whether  or  not  the 
appliances  or  methods  used  are  furnishing  satisfactory  results,  and  should 
have  the  authority  to  accept  work  less  than  perfectly  executed,  when  it  would 
not  be  feasible  to  replace  the  same  if  torn  out  by  the  contractor,  making  a 
reasonable  deduction  in  the  pay  for  the  imperfect  work.  This  is  a  delicate 
matter,  easily  abused. 

6.  Payments.  —  It  should  be  stipulated  what  the  rates  of 
payment  are  to  be  (as  shown  in  the  Proposal,  for  example),  how 
and  by  whom  the  amounts  due  are  to  be  determined,  when  same 
are  due,  and  how  "  extras  "  are  to  be  handled.  In  case  of  delayed 
payments,  the  contractor  should  receive  interest  from  the  date 
when  due,  since  he  must  generally  pay  out  interest  on  loans 
necessary  to  meet  his  payroll  and  maintain  his  organization 
during  the  delayed  period.  Also,  if  it  is  his  own  money,  he  is 
nevertheless  entitled  to  receive  interest  upon  it  if  he  is  obliged  to 
devote  it  to  furthering  the  owner's  job. 

11  D.  Chapter  IX  discusses  the  practical  details  of  contract- 

8 


INTRODUCTION  §  11  D 

writing  much  more  comprehensively.  The  subject  has  been 
introduced  here  to  add  interest  and  value  to  the  subsequent  study 
of  contract  principles  as  items  of  universal  doctrines  of  juris- 
prudence. It  is  also  introduced  here  as  a  suggestion  that  exercises 
and  drill  in  writing  specific  clauses  to  accomplish  the  stated 
objects  (or  intention)  are  unequaled  methods  both  of  acquiring 
complete  familiarity  with  the  legal  principles,  as  well  as  facility 
in  clarity  and  definiteness  of  expression. 


t 
9 


CHAPTER  I 
CONTRACTING  AS  A  BUSINESS 

War  conditions  brought  public  attention  to  a  prompt  focus  with  respect 
to  the  methods  of  accomplishing  large  undertakings,  such  as  ship-building, 
cantonments,  government  housing  enterprises,  etc.  This  chapter  shows 
the  standing  attained  by  the  modern  types  of  construction  contracts, 
in  distinction  to  the  older,  rigid,  lump-sum  contract  most  commonly 
used.  It  also  seeks  to  show  clearly  that  the  contractor  is  engaged  in 
a  legitimate  and  necessary  business.  Engineers  should  be  the  first  to 
recognize  that  the  contractor's  task  is  naturally  difficult,  and  to  extend 
hearty  co-operation  and  assistance  to  him  as  a  co-worker  to  a  common 
end.  Finally,  it  discusses  in  considerable  detail  the  modern  fee,  per- 
centage, and  bonus  types  of  construction  contracts. 

12.  After-War  Status  of  Contract  Work.  — The  Great  War 
of  1914-1918  had  prodigious  and  cataclysmic  .effects.  Considered 
fundamentally  as  a  matter  of  political  organization  of  governments, 
yet  the  train  of  economic  world-wide  effects  were  of  such  a  scope 
and  character  that  few  could  foretell  subsequent  developments,  — 
many  of  which  directly  concerned  the  whole  engineering  profession. 

Engineering  is  here  considered  to  embrace  all  that  interwoven  body  of 
economic,  physical  or  scientific  knowledge  which  is  applied  to  the  broader 
service  of  mankind,  as  making  possible  or  developing  commerce,  sanitation, 
public  works,  or  the  production  of  commodities. 

War  finance  everywhere  led  to  currency  inflation.  There 
was  also  diminished  production  in  every  commodity  not  lending 
itself  to  war-effort,  partly  because  of  the  diversion  of  raw  materials 
to  war-needs,  and  partly  due  to  the  enormous  diversion  of  workers 
to  purely  military  organizations.  The  war  period  also  saw  a 
prodigious  loss  of  workers,  both  on  the  battlefield  and  in  direct 
military  service.  Among  the  non-combatants  there  was  great 
indirect  wastage  in  every  severely  war-stricken  country.  And 
finally,  every  surviving  soldier  who  spent  any  appreciable  time 
in  military  service  sustained  a  mental  shock  or  upset  which  pre- 
vented countless  producers  from  immediately  re-assuming  their 
wonted  peace-time  productivity.  All  these  factors,  together  with 
that  of  the  inflated  currency  conditions,  brought  the  question  of 
enlarging  and  speeding-up  the  production  of  commodities  to  a 
painful  focus,  since  the  phenomenally  high  prices  everywhere 

10 


CONTRACTING   AS   A    BUSINESS  §  12  B 

produced  a  marked  stage  of  social  and  industrial  unrest,  indicative 
of  a  great  strain  on  the  whole  social  fabric. 

Returning  now  to  the  starting  point,  the  engineering  pro- 
fession is  directly  concerned  and  responsible  for  assisting  in  the 
speeding-up  of  production,  and  for  repairing,  reconstructing,  or 
making  good  much  of  the  war-devastation.  Such  indeed  is  the 
true  function  of  engineering. 

12  A.  Psychology  and  Production.  —  In  analyzing  the  factors 
of  the  problem,  it  was  again  seen,  now  with  especial  emphasis 
and  clarity,  that  the  elements  of  personal  contact  were  vital. 
As  between  those  who,  in  a  large  way  undertook  to  carry  forward 
constructive  or  productive  projects,  and  those  relied  upon  to 
actually  perform  the  work,  personal  relations  were  perhaps  equally 
potent  factors  with  the  selection  of  the  correct  materials  or  a  full 
understanding  of  the  physical  processes  or  scientific  knowledge 
upon  which  the  whole  undertaking  was  founded. 

In  other  words,  the  Great  War  unquestionably  brought  out 
an  appreciation  of  human  values  and  relationships  to  an  un- 
precedented extent.  The  will,  or  the  soul  of  the  soldier,  and  no 
less  of  the  worker,  were  seen  to  be  of  an  importance  at  least  equal 
to,  if  not  exceeding,  that  of  every  other  physical  consideration 
whatsoever.  The  importance  of  the  psychological  element  in 
production  universally  stood  out  with  a  clearness  and  distinctness 
never  before  approached. 

This  again  but  affirmed  the  knowledge  of  every  experienced 
construction  engineer,  namely  the  great  advantage  commonly 
to  be  attained  by  carrying  on  work  by  contract,  as  against  any 
other  scheme  of  employment,  since  it  definitely  introduces  a 
psychological  element  of  great  weight  and  importance  —  to  be 
more  fully  developed  in  this  text. 

12  B.  Contracts  in  Engineering.  —  Contracts  date  from  re- 
motest antiquity,  and  civilization  itself  rests  upon  them,  —  with 
such  a  background,  modern  as  Well  as  ancient,  can  the  engineer 
afford  not  to  be  as  thoroughly  cognizant  of  contracts  and  contract 
principles  as  the  opportunity  permits  him  to  become? 

This  text  proposes  to  first  set  forth  with  considerable  detail 
the  occurrence  and  scope  of  the  modern  business  and  construction 
contract,  which  he  may  in  reason  expect  to  certainly  meet,  its 
types,  aims,  and  principal  characteristics,  with  illustrative  ex- 
amples. Having  then  observed  the  part  which  it  plays  in  modern 

11 


§  13  CONTRACTS 

engineering  practice,  the  development  of  the  purely  legal  phases 
of  such  contracts  will  be  undertaken.  Thus,  practicing  the  pro- 
fession, he  will  the  more  intelligently  and  adequately  protect  the 
legal  rights  and  practical  interests  of  his  client,  as  well  as  more 
fully  appreciate  the  legal  status  of  all  the  parties  to  the  contract. 

13.  Is  Contracting  a  Legitimate  Business?  —  Why  is  work 
done  by  Contract  instead  of  by  day  labor?  Economical  and  un- 
wasteful  construction  requires  that  there  shall  be  no  needless  ex- 
penditure of  wages,  time,  or  materials  to  bring  about  the  desired 
result.  Of  these  three  elements,  wages  and  materials  can  be 
expressed  on  a  money  basis,  but  wages  are  the  sole  element  with 
personal  or  imponderable  characteristics.  Wages,  or  labor  costs, 
are  commonly  as  much  as  one-half  the  total  cost  of  work. 

There  are  certain  mental  elements,  affecting  the  output  of 
work  as  unvarying  as  the  law  of  gravitation.  Prominent  among 
them  are  payment  or  reward  proportionate  to  performance.  Am- 
bition and  personal  pride  likewise  play  a  vital  part.  Co-ordina- 
tion of  effort,  and  systematic  planning  and  direction  play  a  part 
increasingly  important  as  the  complexity  and  difficulty  of  work 
increases. 

A  contractor  must  needs  have,  as  his  principal  assets,  insight, 
knowledge,  judgment,  and  experience.  His  reward  lies  in  lessened 
costs  through  their  application.  With  any  reasonable  capability 
on  the  contractor's  part,  therefore,  it  follows  of  necessity  that  the 
work  will  cost  less  than  where  it  lacks  the  benefit  of  his  interested 
direction.  Aimless,  ambitionless  labor  is  least  productive,  and 
in  general,  the  day  laborer  works  upon  such  a  basis. 

The  thinker  along  the  lines  of  social  philosophy  easily  per- 
ceives that  economical  production  is  at  the  base  of  social  welfare 
and  national  greatness.  Hence  the  competent  contractor  is  a 
definite  asset  to  the  body  politic  and  should  be  recognized  as  such. 
It  is  a  distinct  advantage  to  the  community  if  he  continues  in 
business.  Why  penalize  him  for  attempting  it?  The  contracts 
which  he  undertakes  must  be  fair  both  in  results  to  be  obtained 
and  in  compensation  therefor.  There  must  likewise  be  correct 
cost  estimating,  provided  the  contractor  is  to  stay  in  business. 

13  A.  Recognizing  the  Contractor.  —  There  are  unscrupulous 
contractors,  as  in  every  other  class  of  people,  but  probably  not 
more  so.  For  centuries,  seemingly,  construction  contracts  have 
been  written  almost  wholly  by,  and  in  the  interests  of,  owners, 

12 


CONTRACTING  AS  A   BUSINESS  §  13  A 

with  a  strong  bias  against,  rather  than  in  favor  of,  the  contractor. 
Yet  the  contractor  must  live,  his  work  is  necessary  —  why  penalize 
him  because  he  has  the  courage  and  initiative  to  undertake  work 
frequently  involving  large  inherent  difficulties  at  the  very  best? 
Contractors,  as  a  class,  have  called  attention  to  the  following 
matters,  frequently  overlooked. 

Thus,  to  secure  low  bids,  give  full  and  detailed  information 
concerning  the  work  including  everything  necessary  to  figure  costs. 
Avoid  all  uncertainties  as  to  the  rights  or  duties  of  either  party. 
Distinct  items  should  be  bid  upon,  to  the  greatest  number  into 
which  the  work  can  be  advantageously  divided. 

This  is  because  every  total  sums  up  its  constituent  parts;  hence  work 
separated  into  items,  each  of  which  can  be  bid  upon  and  paid  for  separately 
insures  that  the  contractor  will  not  carry  any  uncertainty  from  one  item 
to  the  next,  and  that  he  will,  moreover,  be  paid  for  what  he  does.  Incidentally, 
arguments  as  to  what  is  or  is  not  included  in  the  contract  are  thus  avoided. 

Provide  competent  inspection  for  the  work.  Arrange  to  pay 
the  contractor  promptly  when  his  pay  is  due.  Submit  the  con- 
tract with  the  specifications,  so  that  all  the  terms  may  be  in  pos- 
session of  the  bidder.  Provide  fairly  for  handling  disputes  which 
may  honestly  arise,  arbitration  being  doubtless  the  best  method, 
but  provide  that  the  work  shall  not  be  held  up  pending  such  an 
adjustment. 

Do  not  ask  the  contractor  to  gamble  on  local  conditions.  It 
is  the  owner's  business  and  duty  to  possess  superior  knowledge  of 
them,  and  he  should  not  expect  to  secure  specially  costly  or  un- 
expectedly difficult  construction  without  paying  for  it.  The 
benefit  of  the  completed  work  plainly  inures  to  the  owner,  not  to 
the  contractor,  hence  the  owner  should  pay,  and  the  contractor 
should  not  be  penalized  for  undertaking  the  work. 

The  contractor's  delay  caused  by  the  owner  is  something  the 
owner  should  fairly  pay  for.  He  should  not  be  penalized  for 
delays  of  other  contractors,  nor  those  due  to  other  causes  definitely 
beyond  his  control.  Settlement  of  uncontested  items  should  not 
preclude  the  contractor  from  the  right  of  setting  up  other  disputed 
claims  in  court,  though  it  has  often  and  unfairly  been  provided 
that  signing  a  release  and  waiver  of  contested  claims  shall  be  a 
condition  precedent  of  final  payment,  though  this  easily  amounts 
to  duress.  (See  §  58.) 

No  bids  should  be  asked  until  money  to  pay  for  the  work  has 

13 


§  14  CONTRACTS 

keen  provided.  The  amount  of  certified  checks,  or  bid  bonds, 
should  be  clearly  announced,  and  bids  opened  publicly  (if  upon 
public  work)  at  the  time  and  place  stated,  only.  Award  should 
be  made  as  promptly  as  possible,  and  checks,  or  bid  bonds,  returned 
to  unsuccessful  bidders  immediately.  Performance  bonds  should 
not  exceed  25  per  cent  of  the  contract  price.  For  changes  made 
in  plans  involving  materials  already  purchased  or  in  transit,  or  in 
manufacture,  the  contractor  should  be  reimbursed  for  the  loss 
actually  caused  him.  Work  done  properly,  ordered  torn  down 
for  inspection,  should  be  paid  for  at  full  price  by  the  owner.  Com- 
pleted work  shall  be  promptly  accepted  or  rejected  and  written 
notices  given  thereof. 

In  brief,  unjust  provisions  are  bound  to  add  to  the  cost  of  the 
work  whether  they  are  enforced  or  not.  The  square  deal  all 
around  is  ultimately  best  and  cheapest. 

14.  Types  of  Engineering  Contracts.  —  The  common  law 
essentials  must  be  observed  in  forming  any  contract  if  it  is  to  have 
binding  effect.  That  is  not  saying,  however,  that  the  provisions 
of  contracts  framed  to  secure  substantially  the  same  results  may 
not  be  varied  so  as  to  require  grouping  as  different  types.  This  is 
particularly  true  of  engineering  contracts,  and  the  prominent 
features  of  three  types  will  be  outlined  here.  The  engineering 
contractor  classifies  them  according  to  the  mode  of  letting,  or 
awarding  the  contract,  since  each  type  differing  in  this  respect 
carries  also  its  own  special  characteristics. 

Mr.  Frank  B.  Gilbreth,  a  prominent  and  widely  experienced  contractor, 
writing  in  Engineering  News,  October  18,  1906,  describes  in  a  masterly  fashion 
the  salient  features  of  (a)  "  Lump-Sum,"  (6)  "  Percentage,"  and  (c)  "  Cost- 
Plus-a-Fixed-Sum  "  contracts.  He  analyzes  each  upon  four  points. 

(1)  Lowest  total  cost  to  the  owner. 

(2)  Greatest  speed  of  construction. 

(3)  Best  workmanship. 

(4)  Future  business  between  owner  and  contractor,  based  upon  past 
experience. 

(a)  Under  the  "  LUMP-SUM  "  contract  the  contractor  agrees  to  furnish 
all  labor  and  materials  necessary  to  complete  a  certain  definite  piece  of  work 
(plans,  specifications,  and  details  of  which  must  be  complete),  for  a  definite 
lump-sum  (or  at  unit-prices). 

While  at  first  glance  this  appears  to  be  a  very  reasonable,  harmless  and 
peaceful  sort  of  a  contract,  it  is  in  fact  often  anything  but  that.  Difficulties 
arise  when  the  owner  changes  his  mind,  or  the  engineer  changes  his  plans,  and 
the  opportunity  arises  for  the  contractor  to  charge  for  "  extras,"  —  often 
a  thing  he  has  been  earnestly  hoping  for.  From  now  on  the  essence  of  the 
lump-sum  theory  is  violated,  for  there  is  now  added  the  contingencies  of  costs 
for  extras,  time  extensions,  and  lawyer's  fees. 

As  the  interests  of  the  owner  and  of  the  contractor  are  opposed  finan- 

14 


CONTRACTING   AS  A   BUSINESS  §  14 

daily,  the  above  loop-holes,  and  many  others  practically  unavoidable  in  a 
lump-sum  contract,  will  ordinarily  be  taken  advantage  of  by  the  contractor, 
since  the  money  he  can  save  he  is  saving  for  himself. 

"  What  does  the  owner  pay  for  under  this  form  of  contract?  "  The  first 
premise  is  that  the  contractor  will  not  work  without  a  profit.  Furthermore, 
he  is  taking  the  risk  of  unfavorable  circumstances;  he  therefore  adds  a  good 
stiff  percentage  so  that  he  may  be  sure  of  his  profit,  whatever  happens.  If  the 
possible  extra  hazard  does  not  materialize,  then  the  contractor  has  made  two 
profits,  if  he  has  previously  allowed  for  a  reasonable  profit  supposing  that  he 
will  do  the  work  under  ordinary  conditions.  But  specially  favorable  circum- 
stances are  as  likely  to  arise,  on  the  average,  as  often  as  the  unfavorable  ones 
first  contemplated,  and  in  such  a  case  the  contractor  will  have  made  three 
profits. 

Another  disadvantage  is  that  the  owner  cannot  hold  the  contractor  to  the 
speed  requirements,  nor  to  the  date  of  completion  in  case  he  has  ordered  extra 
work.  (See  "Effect  of  Alterations,"  §§32,  109.) 

(6)  In  the  "  PERCENTAGE  "  contract  the  contractor  agrees  to  furnish 
all  materials  and  labor  necessary  to  complete  the  entire  undertaking  for  cost, 
plus  an  agreed  percentage  of  the  said  cost.  This  would  seem  to  be  a  very 
desirable  arrangement.  "  Nearly  perfect,  —  but  not  quite,"  says  Mr.  Gilbreth. 
The  owner  can  regulate  the  time  of  completion,  the  class  of  labor  he  will  em- 
ploy, the  modes  of  execution,  quality  of  materials,  etc.  The  interests  of  the 
owner  and  contractor  are  identical,  so  far  as  speed  of  construction  and  the 
desire  to  obtain  good  work  are  concerned,  and  the  chances  for  continued 
pleasant  relations  are  good,  if  it  were  not  for  the  fact  that  the  owner  is  apt  to 
suspect  that  the  contractor  may  be  increasing  the  cost  for  the  sake  of  getting 
more  profit,  since  that  is  directly  proportional  to  the  cost  of  the  whole  under- 
taking. 

(c)  To  remove  the  above  temptation  from  the  path  of  the  contractor,  the 
"  COST-PLUS-A-FIXED-SUM  "  contract  was  devised.  It  possesses  all 
the  advantages  of  the  "  percentage"  contract,  and  the  only  discoverable 
disadvantage  is  that  the  owner  cannot  possibly  get  his  undertaking  completed 
for  less  than  cost,  as  might  happen  under  the  "lump-sum"  contract  — 
supposing  the  contractor  had  made  an  error  in  his  bid  and  had  not  had  an 
opportunity  to  recoup  himself  on  "  extras." 

Under  a  scheme  of  profits  equal  to  a  predetermined  sum,  the  interests 
of  both  parties  are  identical,  since  the  owner  knows  in  advance  just  what 
the  contractor  will  make,  and  as  the  contractor's  profits  or  salary  are  assured, 
it  is  for  his  interest  to  perform  the  work  in  such  a  manner  as  to  retain  the 
owner's  patronage.  This  means  that  he  will  honestly  endeavor  to  perform 
the  work  in  the  shortest  possible  time,  with  the  best  possible  workmanship, 
and  for  the  least  cost.  And  the  money  which  his  skill  and  enterprise  can  save 
inures  to  the  benefit  of  the  owner,  who  is,  moreover,  relieved  of  the  menace 
of  "  extras  "  done  at  excessive  costs.  The  owner  may  change  his  plans  at 
will,  he  may  purchase  his  own  materials  if  he  so  desires,  or  he  may  require 
that  proposals  to  buy  shall  be  submitted  to  him  in  advance  of  ordering  the 
materials.  He  may  complete  his  excavations  and  foundations  while  plans 
for  the  superstructure  are  being  drawn,  and  can  have  any  number  of  skilled 
or  carefully  trained  mechanics  massed  on  the  work  as  his  own  judgment  or 
initiative  indicates.  Many  other  advantages  will  accrue  to  him  which  it  is 
not  necessary  to  enumerate  here. 

From  the  contractor's  standpoint,  the  advantages  are  not  less  significant 
and  important.  He  now  has  an  opportunity  to  win  high  business  prestige 
solely  upon  his  merits.  His  profits  will  be  assured.  He  will  be  free  from 
relations  with  owners  who  have  not  the  courage  to  take  legitimate  risks  in 
conjunction  with  their  undertakings,  and  who  wish  to  saddle  them  upon  a 
contractor  on  a  lump-sum  basis,  and  leave  him  to  gamble  his  way  out  as 
best  he  can.  And  last,  but  not  least,  the  contractor  has  the  satisfaction  of 
dealing  with  an  owner  who  has  no  reason  to  suspect  him  of  over-reaching, 

15 


§  14  A  CONTRACTS 

who  is  not  in  constant  dread  of  extortionate  charges  for  extra  work,  and  who  is 
in  fact  a  party  to  a  contract  offering  him  complete  financial  insight  into  the 
job. 

Mr.  Gilbreth's  final  comment  upon  this  type  of  contract  is  worthy  of 
serious  consideration  from  engineers  who  let  contracts,  and  would  like  to  see 
the  business  of  engineering  contracting  raised  from  a  plane  of  sordid  gambling 
to  a  more  enlightened  and  equitable  one  befitting  its  importance  to  the 
engineering  profession.  He  says,  "  The  cost-plus-a-fixed-sum  contract  has 
proved,  time  and  again,  that  the  same  amount  of  effort,  thought,  and  money 
required  to  win  lawsuits,  can  be  better  spent  to  reduce  the  costs  and  the  time 
of  completion,  and  in  securing  better  workmanship." 

In  writing  the  above,  Mr.  Gilbreth  probably  had  agreements  for  the 
construction  of  buildings  largely  in  mind.  The  student  should  not  jump  to 
the  conclusion  that  this  form  of  contract  is  universally  adaptable  to  all  classes 
of  construction  work,  nor  that  it  will  probably  ever  wholly  supersede  the 
lump-sum  contract.  It  is  submitted  that  a  wider  adoption  of  it  would  lessen 
litigation  and  raise  the  general  business  level  of  contracting. 

14  A.  Day-Labor  us.  Contrlct  Work.  —  Where  the  supervision 
of  day-labor  has  been  efficient,  and  the  organization  permanent, 
the  system  produces  good  results  at  reasonable  costs,  often  lower 
than  those  obtained  by  the  contract  system.  Many  competent 
observers  state  that,  properly  controlled,  the  day-labor  system 
produces  better  work.  This  means  adequate  supervision,  and 
completeness  of  plans  and  specifications.  Is  there  a  reason  for 
this?  Ought  day-labor  to  be  cheaper  than  contract  work? 

In  the  day-labor  plan,  a  certain  employee  receiving  a  fixed 
wage,  whether  he  earns  it  or  not,  directs  the  efforts  of  those  work- 
ing under  him,  until  the  job  is  done.  He  is  not  necessarily  much 
interested  whether  it  takes  a  long  or  a  short  time,  or  whether  it 
costs  little  or  much.  He  has  no  particular  stimulus  to  physical 
activity,  to  get  around  the  job  and  keep  it  moving,  nor  to  mental 
activity  to  keep  him  constantly  studying  how  he  can  accomplish 
more  with  the  least  cost,  or  less  expenditure  of  energy.  He  is 
not  directly  interested  in  the  amount  of  time  required,  because 
his  pay  goes  on  just  the  same,  and  at  the  same  rate,  —  why  worry? 

It  is  true  that  the  contractor  has  much  organization  expense  (see 
§§  15  EJ-G,  Overhead)  which  the  day-labor  group  does  not  have. 
He  must  assume  the  risk  of  many  possible  and  probably  unforeseen 
contingencies,  bound  to  greatly  affect  the  cost  of  his  work.  The 
day-work  plan  carries  no  overhead,  apparently,  —  it  is  not  burdened 
with  being  prepared  to  meet  the  expense  of  contingencies  that 
may  but  do  not  happen.  Yet  the  construction  experience  of  a 
century  is  nearly  universal  that  the  day-labor  plan  as  tried  was 
usually  superseded  where  possible  by  contract  work.  Several 
reasons  appear  to  throw  light  on  this  important  fact  as  follows: 

16 


CONTRACTING   AS  A    BUSINESS  §  14  C 

(a)  Better  methods  on  the  part  of  the  contractor,  because  it 
paid  him  to  develop  them. 

(6)  Definite  and  complete  plans  and  specifications  showing 
what  was  to  be  done  —  an  idea  essentially  foreign  to  the  usual 
day-labor  principle. 

(c)  Saving  of  time  by  reason  of  matters  set  forth  in  (a)  (6). 

14  B.  The  practical  conclusion  is  that  day-labor  should  be 
used  only  when  the  work  is  too  small  to  contract;  or  when  the  local 
or  emergency  conditions  are  such  that  it  is  not  practical  to  con- 
tract; or  when  the  owner  has  experts  in  a  certain  specialized  line 
superior  to  those  of  the  contractor. 

When  shall  the  second  or  third  methods  last  stated  be  used? 
With  the  same  regulations  and  restrictions  and  the  same  personnel 
in  day-labor  system  as  in  contract-work,  both  should  carry  on  the 
work  at  the  same  cost  to  the  owner  up  to  the  point  where  costs 
other  than  labor  and  materials  enter.  In  the  contract  system  the 
contractor's  overhead,  profits,  and  payment  for  possible  con- 
tingencies must  be  added  to  the  above  costs. 

The  day-labor  system  on  public  work  is  expensive  partly 
because  it  is  generally  hampered  by  laws  that  limit  the  payment  of 
labor,  foreman,  and  supervisors.  It  is  thus  deprived  of  the  high 
class  of  supervision  the  contract  system  permits.  The  low  salary 
often  commands  supervisors  and  managers  of  only  ordinary  ability, 
or  only  partially  experienced  in  their  particular  line. 

The  contract  system  on  the  other  hand  is  not  restricted  as  to 
obtaining  the  best  supervision  of  labor,  and  moreover  the  success- 
ful contractor  is  frequently  a  man  of  exceptional  ability  —  one 
who  represents  the  survival  of  the  fittest. 

14  C.  Lump-Sum  vs.  Cost-Pius.  —  Discussing  the  choice  of  a 
type  of  contract  from  the  several  viewpoints  of  Contractor, 
Engineer,  and  Owner,  the  following  conclusions  may  be  drawn: 

Contractor.  —  He  may  be  expected  to  favor  lump-sum  on  the 
argument  that  he  will  probably  make  more  money  (assuming  that 
the  award  is  high  enough),  that  he  likes  to  gamble,  and  that  what- 
ever he  makes  (in  the  way  of  saving)  is  his. 

He  will  be  opposed  to  lump-sum  by  reason  of  the  greater  hazards 
involved,  of  which  the  greatest  are,  other  than  poor  management, 
the  weather  and  unscrupulous,  or  reckless  bidding  of  his  com- 
petitors, and  unfairness  of  the  engineer,  architect,  or  owners,  with 
the  possibility  of  selecting  inefficient  or  unreliable  sub-contractors. 

17 


§  14  D  CONTRACTS 

When  bidding  competitively,  under  a  lump-sum,  the  con- 
tractor realizes  no  asset  in  being  possessed  of  a  really  high-class 
organization  specially  adapted  to  doing  the  work  in  question, 
because  the  layman,  or  the  uninformed  owner  looks  only  at  the 
lowest  bid,  and  believes  that  a  performance  bond  completely  pro- 
tects him.  The  job  is  spoiled  for  a  good  contractor,  by  reason  of 
unintelligent  bidding  by  others.  The  job  is  spoiled  for  the  owner 
because  he  does  not  get  what  he  is  paying  for  in  satisfactory  work. 
He  may  get  lawsuits  and  other  troubles  thrown  in. 

Another  very  serious  objection  under  lump-sum  arises  because  even 
the  best  contractors,  as  a  class,  have  by  reason  of  really  unavoidable  losses, 
suffered  financial  losses  to  an  extent  often  sufficient  to  hurt  their  credit,  and 
thus  banking  assistance  may  be  withdrawn  from  them  at  the  most  critical 
moment. 

Engineer  or  Architect.  —  An  objection  to  the  lump-sum  from 
his  standpoint  is  that  he  is  not  allowed  to  select  the  organization 
he  believes  most  efficient  and  best  for  the  owner,  fearing  suspicion 
of  ulterior  motives  from  the  owner  if  he  recommends  other  than 
the  lowest  bid. 

Owner.  —  Here  the  chief  objection  to  the  lump-sum  is  that  the 
owner  and  contractor  are  not  working  along  parallel  lines.  Their 
interests  are  not  the  same,  since  the  contractor  is  naturally  bound 
to  do  only  that  which  it  is  his  legal  duty  to  do,  or  which  will  satisfy 
his  conscience  or  his  personal  pride.  Yet  the  owner's  interest  is 
to  get  all  he  can  for  the  fixed  sum  which  he  must  pay  provided 
by  the  inelastic  terms  of  the  lump-sum  contract. 

14  D.  The  Cost-Pius  plan  permits  the  owner  to  select  a  highly 
developed  and  flexible  construction  organization,  and  to  en- 
courage its  most  effective  use,  permitting  all  parties  to  work 
toward  a  common  end. 

Under  a  "  cost-plus  "  plan  harmony  exists  because  the  parties' 
interests  are  the  same,  and  they  practically  form  a  partnership. 
The  "  cost-plus  "  contractor  receives  the  wages  of  trust.  There 
must  be  known  integrity  and  efficiency  in  the  organization  before 
it  is  wise  to  deal  with  a  contractor  on  any  basis,  but,  being  first 
satisfied  with  the  contractor's  organization  and  character,  the 
advantages  of  the  "  cost-plus  "  method  are: 

First,  the  rate  of  profit  being  fixed  in  advance  the  owner  and  contractor 
have  no  conflicting  interests. 

Second,  desirable  changes  which  appear  during  construction  can  be  made 
in  exact  equity  to  the  owner. 

18 


CONTRACTING  AS   A   BUSINESS  §  14  F 

Third,  it  should  give  an  owner  a  better  property,  —  the  best  he  and 
his  engineer  or  architect  and  contractor  can  produce  for  the  money  spent, 
at  a  lower  profit  than  he  would  usually  pay  on  a  flat  sum  basis.  He  pays 
cost,  plus  a  reasonable  pre-agreed  profit,  which  is  as  cheap  as  he  is  entitled 
to  it;  and, 

Fourth,  the  work  can  be  started  immediately  without  waiting  for  com- 
plete plans.  The  construction  force  works  for  the  owner  precisely  as  his 
architect  or  engineer  works  for  him,  and  can  meet  any  contingency  in  material 
or  labor  markets  from  the  owner's  point  of  view. 

There  are  small,  short  jobs,  where  the  cost  can  be  pretty  accurately 
determined  in  advance.  Here  the  lump-sum  basis  will  produce  satisfactory 
results,  but  in  important  work  where  details  can  not  be  determined  in  ad- 
vance, or  where  all  material  can  not  be  promptly  purchased  when  the  contract 
is  signed,  the  contractor  takes  a  big  gamble  for  which  he  must  be  adequately 
paid. 

14  E.  Cost-Plus-a-Limited-Fee.  —  There  have  been  abuses  in 
the  cost-plus  system.  This  can  be  remedied  by  a  system  which 
puts  the  contractor  on  his  mettle  to  achieve  and  maintain  a 
reputation  as  an  economical  and  efficient  builder,  and  which  also 
makes  his  pecuniary  reward  dependent  upon  his  degree  of  success 
in  carrying  out  his  contract.  (Compare  §  14  C.) 

These  abuses  can  only  be  avoided  by  securing  a  contractor 
of  unquestioned  honesty  and  ability.  Where  there  is  time,  how- 
ever, to  prepare  complete  plans  and  specifications,  some  of  the 
good  points  of  lump-sum  competitive  bidding  can  be  combined 
with  a  cost-plus  system,  and  embody  the  incentives  of  "  making 
good  "  referred  to  before.  The  owner  thus  secures  the  benefit  of 
both  systems. 

The  architects  or  engineers  invite  four  or  five  honest  and  competent 
contractors  to  submit  competitive  bids  on  the  amount  of  the  lump-sum  fee 
for  which  they  will  do  the  work  on  a  cost-plus  basis.  Each  contractor  sub- 
mits with  his  bid  on  the  fee  a  detailed  estimate  of  the  actual  cost  of  the  work, 
and  is  required  to  guarantee  his  estimate  to  the  amount  of  one-half  of  his 
fee;  that  is,  if  the  actual  cost  should  exceed  the  estimated  cost,  the  overrun 
is  to  be  deducted  from  the  contractor's  fee  up  to  one-half  the  amount  of  the 
fee.  This  gives  the  contractor  every  incentive  to  keep  the  cost  as  low  as 
possible  in  order  that  he  shall  earn  his  full  fee,  but  is  not  so  strong  as  to  cause 
him  to  risk  his  reputation  by  slighting  the  work,  as  he  is  certain  of  at  least 
one-half  his  fee.  An  added  incentive  for  economy  and  efficiency  is  to  give 
the  contractor  a  percentage  (usually  50  per  cent)  of  any  savings  in  cost  under 
the  estimated  cost. 

14  F.  Unit  Cost  Plus  a  Fee.  —  A  novel  form  of  contract  has 
been  used  on  some  state  highway  jobs  in  Massachusetts.  The 
contractor  is  paid  the  actual  cost  of  the  work  plus  an  agreed  price 
per  unit  of  work  done,  this  price  being  the  contractor's  fee.  The 
fee  covers  the  contractor's  services  and  the  use  of  small  tools,  a 
rental  price  being  paid  for  other  equipment. 

19 


§14  G  CONTRACTS 

On  one  contract  the  contractor's  fee  for  earth  excavation  was  6  ct.  per 
cu.  yd.,  and  12  ct.  per  ton  for  broken  stone.  This  would  indicate  a  fee  ap- 
proximating 10  per  cent  of  the  cost  of  the  work. 

For  certain  classes  of  work  this  form  of  fee  contract  has  advantages  over 
the  "  cost  plus  a  fixed  sum  "  contract.  It  permits  any  desired  extension  or 
curtailment  of  the  work. 

14  G.  Cost-Plus-Fee  with  Divided  Risk.  —  A  contract  pro- 
posed for  a  Kansas  City  viaduct  departed  from  the  common  form 
of  contract. 

Under  it  the  contractor  must  name  an  estimated  cost,  to  be  revised  when 
the  actual  quantities  were  known  on  the  completion  of  the  work,  using  the 
unit  prices  mentioned  in  his  preliminary  estimate.  The  fee  must  not  exceed 
10  per  cent  of  this  estimated  cost.  Any  saving  the  contractor  can  make 
under  the  estimated  cost  of  the  work  will  be  divided,  his  share  being  one-half. 
In  case  the  cost  of  the  work  overruns  the  estimated  cost  he  will  pay  one-half 
of  such  excess  cost,  but  in  no  case  shall  he  receive  as  a  fee  less  than  one- 
third  of  his  original  fee. 

14  H.  Cost-Pius  on  a  Sliding  Scale.  —  The  weakness  of  a 
"  fixed-fee  "  payment,  or  of  a  "  percentage-fee  "  payment,  arises 
from  the  fact  that  the  contractor  may  not  exert  himself  sufficiently 
to  keep  down  the  cost.  This  weakness,  however,  can  be  eliminated 
by  adopting  a  sliding-scale  fee,  based  on  some  standard  daily, 
weekly,  or  monthly  performance. 

For  example,  let  the  standard  output  of  a  concrete  mixer  be,  say,  80 
cu.  yd.  per  day,  and  let  the  contractor's  fee  be  15  ct.  per  cubic  yard  when 
this  standard  output  is  maintained.  This  would  yield  him  a  daily  fee  of 
$12  on  the  mixer  gang  for  mixing  and  placing  concrete.  Let  the  fee  be  in- 
creased 1  ct.  per  cubic  yard  for  each  5  cu.  yd.  of  increased  daily  output  in 
excess  of  80  cu.  yd.  and  decreased  in  a  similar  ratio  for  any  falling  off  in  the 
daily  yardage. 

Such  a  sliding-scale  fee  would  stimulate  a  contractor,  and  it  would  result 
in  securing  low  unit  costs. 

15.  U.  S.  Percentage  Contracts  on  Cantonments.  — Major 
W.  A.  Starrett,  Chief  of  Emergency  Construction  Division,  in 
March,  1918  (Engineering-Contracting,  49-13),  explaining  the 
Government  Percentage  Contract,  said: 

"The  building  program  lay  squarely  across  the~path  of  practically  every 
line  of  war  endeavor.  It  covered  buildings  for  production  and  storage  of 
munitions  on  an  unprecedented  scale,  besides  the  construction  of  canton- 
ments. Leading  constructors  and  engineers  were  called  to  Washington  to 
give  advice  and  meet  existing  problems,  found  to  contain  the  following  ele- 
ments: 

"  The  country  was  some  weeks  into  the  war,  and  the  National  Army  had 
to  be  called  in  September,  about  three  and  one-half  months  later.  The 
large,  well-organized  contracting  organizations  of  the  country  could  render 
valuable  services.  If  the  Government  should  organize  an  administrative 
and  supervisory  machine,  the  contractor  would  be  the  necessary  executive. 
Yet  the  Government  did  not  know  in  detail  what  it  wanted,  nor  what  effect 

20 


CONTRACTING   AS   A   BUSINESS  §  15  A 

this  huge  progiam  of  construction  would  have  upon  labor  and  material  markets, 
nor  the  effect  of  Government  priority  orders  upon  manufacturers  and  rail- 
roads. Nevertheless  the  Government  and  the  contractor  had  to  be  able 
to  work  out  their  problems  on  the  ground,  without  loss  of  an  hour  of  time. 

"  Taking  competitive  bids  would  have  been  detrimental  to  the  Govern- 
ment's interest  and  indeed  unfair  to  the  contractor.  The  best,  most  fearless 
decision,  netting  the  Government  millions  of  dollars  was  there  made.  Public 
bidding  would  probably  have  flattered  public  taste,  for  the  seeming  lowest 
bidder  would  have  obtained  the  work  and  the  country  would  have  gone  the 
way  rejoicing  —  temporarily.  The  curse  of  administering  and  supervising 
such  a  misfit  would  then  have  set  in.  Every  change,  every  addition,  every 
deduction  would  have  had  its  corresponding  bid,  haggle,  dispute  and  delay. 

"  So  the  decision  was  made  that,  despite  prejudice,  the  Government  would 
deal  with  the  contractors  as  patriotic  business  men  of  integrity  and  ability; 
it  would  carry  its  own  risk  and  not  attempt  to  unload  it  on  the  contractor; 
and  in  so  doing  it  would  save  the  premium  on  that  risk  by  paying  the  con- 
tractor for  his  services  as  an  expert,  which,  indeed,  he  is." 

15  A.  Committee  Report  — Over  $600,000,000  were  spent 
under  the  Quartermaster  Department.  To  meet  adverse  criticism, 
a  committee  of  noted  engineers,  architects,  and  business  men 
(Engineering  Contracting,  49-51)  reported: 

"  The  general  form  of  contract  used  by  the  Cantonment  Division  where 
the  percentage  decreases  as  the  cost  increases  and  is  broken  by  fixed  fees 
at  intervals  seams  calculated  to  effectually  check,  if  not  prevent,  the  tendency 
of  high  costs  under  a  cost-plus  contract.  No  reasonable  objection  can  be 
made  after  a  full  understanding  of  its  equitable  operation  in  practice.  This 
scheme  possesses  one  qualification  which  commends  it  to  all  thinking  men  — 
it  permits  starting  actual  work  weeks  and  even  months  before  the  details  are 
completely  worked  out.  It  permits  the  Government  to  push  the  job  at  any 
speed  it  may  elect,  changing  at  will  its  plan  and  scope  but  paying  only  what 
the  work  actually  costs,  plus  a  fee  which  is  so  reasonable  as  to  be  above  the 
reach  of  fair-minded  criticism." 

The  committee  believes  existing  contractors'  organizations  should  be 
maintained  and  fostered,  as  they  constitute  important  factors  in  the  economic 
life  of  the  nation,  and  will  be  of  exceeding  importance  to  its  progress  when  the 
war  is  over. 

Regarding  the  "lump-sum"  contract,  the  report  states:  "In  war  emerg- 
ency construction  many  projects  originally  small  developed  into  works  of 
great  magnitude  and  importance.  Here  the  '  lump-sum  '  plan  is  too  in- 
flexible to  operate  satisfactorily;  administration  costs  increase  in  adjusting 
important  changes,  while  inequities  and  dissatisfaction  are  bound  to  arise. 
In  an  unstable  market  the  contractor  must  figure  high  enough  to  provide  a 
margin  to  cover  unforeseen  and  uncontrollable  changes  in  the  prices  of  material 
or  labor.  This  results  in  a  speculative  price  disadvantageous  to  the  govern- 
ment. Your  committee  advises  therefore  that  the  'lump-sum'  method 
be  not  used. 

"The  percentage  contract  has  been  a  success,  because  in  its  details  it 
was  well  conceived;  it  gave  the  contractor  a  fair,  but  only  a  fair,  profit;  it 
obtained  at  a  minimum  cost  a  service  the  contractor  was  able  to  render  and 
which  the  Government  was  in  no  position  to  render  itself,  nor  was  the  com- 
pensation high,  yet  it  got  value  received.  It  was  lower  than  the  average 
peace  time  compensation  for  similar  service,  being  7  per  cent  for  small  opera- 
tions (under  $100,000),  scaling  down  to  2|  per  cent  on  very  large  ones,  with 
only  2|  per  cent  allowed  on  sub-contracts,  and  the  limit  of  fee  on  any  one 
contract,  however  large,  of  $250,000.  Out  of  this  fee  the  contractor  paid  his 
own  overhead  costs." 

21 


§  15  B  CONTRACTS 

15  B.  From  Fee  Contract  to  Lump-Sum.  —  In  commenting 
on  the  action  of  Mr.  Schwab  in  changing  a  war  contract  for  ships 
from  a  fee  to  a  lump-sum  contract,  Engineering  News  Record 
said: 

The  action  says  in  effect:  "  The  Government  knows  that  you  can  produce 
the  ships.  It  will  pay  you  a  lump  sum  sufficient  to  guarantee  you  against 
market  fluctuations  and  take  its  hands  off,  so  that  you  will  not  be  delayed 
by  petty  reviewings  of  all  your  actions."  Inquiry  into  minute  detail  and 
delays  in  giving  authorizations  are  evidences  of  that  lack  of  confidence  which 
destroys  the  efficacy  of  the  fee-contract  system.  If  the  government  is  to 
secure  the  results  which  private  owners  have  realized  under  the  fee  system, 
it  must  show  the  confidence  which  the  private  owners  have  shown.  Other- 
wise, the  system  breaks  down.  The  contractor's  reputation  is  worth  nothing, 
because  the  government  sets  no  store  by  it  and  does  not  trust  the  contractor 
by  reason  of  it;  and  unless  the  government  can  give  and  the  contractor 
enioy  a  confidence  proportional  to  this  reputation,  both  are  better  off  under 
the  lump-sum  contract,  although  it  has  been  outgrown  on  private  work. 

15  C.  Percentage.  —  By  the  percentage  method  a  man  or 
firm  is  selected  for  managing  the  work;  hence  the  owner  gets 
the  benefit  of  one  man's  knowledge,  perhaps  the  wrong  man. 

By  the  percentage  method,  the  contractor  has  few  financial 
troubles  to  overcome,  no  particular  inducements  except  pride 
to  introduce  new  methods  or  tools,  no  sleepless  nights  to  figure 
out  some  new  schemes  for  the  next  day,  no  surplus  energy  to 
exert  in  himself  or  employes.  The  employe,  knowing  that 
his  superior  is  not  in  financial  troubles,  does  not  exert  himself 
unnecessarily.  (Compare  §§  14  and  14  C.) 

Unit  Price.  —  If  the  work  is  done  on  unit  price  basis  the  owner 
gets  the  results  of  the  competitive  judgment  and  the  experience 
of  many  men  and  many  firms;  one  will  see  better  where  supplies 
are  obtainable;  another  may  have  a  better  plant  for  the  job; 
another  may  have  a  better  method  of  doing  the  work. 

The  contractor  working  on  a  unit  price  basis  has  not  only 
a  reputation  but  also  his  very  livelihood  at  stake.  Men  may 
take  work  at  unit  prices  so  low  that  a  heavy  loss  seems  inevit- 
able, but  by  using  new  methods,  new  tools,  and  exerting  surplus 
energy  one  turns  an  almost  certain  loss  into  a  profit  for  himself, 
and  a  much  greater  profit  for  the  public,  developing  these  new 
methods. 

15  D.  Bonus  Contract  in  Road- Work.  —  Under  the  common 
form  of  contract,  awarded  to  the  lowest  bidder,  as  on  road-work, 
some  inexperienced  contractors  bid  unnecessarily  low  and  cause 
great  inconvenience  and  delay  through  failure  to  complete  the 

22 


CONTRACTING   AS   A   BUSINESS  §  15  E 

contract,  To  obviate  this,  a  new  type  of  contract  was  drawn  for 
the  construction  of  a  concrete  highway  in  Wisconsin  with  a  reliable 
contractor. 

The  county  agrees  to  furnish  all  the  machinery  and  equipment,  while 
the  contractor  gives  his  personal  supervision  of  the  work  for  a  fixed  sum  per 
mile.  The  labor  is  hired  and  paid  by  the  contractor,  but  twice  monthly 
he  is  reimbursed.  The  county's  daily  inspector  acts  as  timekeeper  of  the 
labor  employed  and  renders  daily  reports. 

Part  of  the  contract  is  a  preliminary  official  estimate  of  labor  costs.  Based 
on  this  estimate  the  contractor  receives  a  bonus  for  any  saving  made  by 
his  keeping  the  total  labor  cost  per  mile  below  the  estimate.  Likewise,  he 
assumes  a  portion  of  the  additional  cost  to  the  county  in  case  the  expenses 
for  labor  exceed  the  estimate. 

A  sliding  scale  of  percentages  covering  both  penalty  and  bonus  is  ar- 
.  ranged,  increasing  the  bonus  offered  based  on  the  amount  saved.  The  scale 
of  percentages  covering  the  penalty  also  increases  in  the  same  proportion 
as  the  additional  cost  to  the  county  over  and  above  the  estimate.  The 
county  may  set  the  maximum  wage  for  labor  and  teams,  and  reserves  the 
right  to  discharge  unfit  or  incompetent  workmen. 

The  contractor  is  thus  assured  of  a  conservative  definite 
profit  per  mile,  with  a  possible  increase  of  reward  if  he  executes 
his  work  systematically  and  economically.  The  county,  on  the 
other  hand,  is  amply  protected,  and  should  profit  by  the  construc- 
tion of  this  road  at  a  minimum  cost. 

Bonus  System  for  Labor.  —  In  practice  we  find  that  among 
contract  laborers  some  men  do  more  and  better  work  than  others 
while  they  all  may  be  receiving  the  same  compensation.  This 
does  not  encourage  the  men  to  do  their  utmost.  The  ideal  con- 
dition would  be  a  piece-rate  system,  paying  each  man  in  pro- 
portion to  the  amount  of  work  turned  out.  Though  not  always 
possible,  in  individual  cases  it  can  generally  be  developed  with 
groups  of  men  at  least. 

By  analysis  the  bonus  system  means  a  piece-rate  system  with 
a  minimum  guarantee.  It  makes  each  man  a  sub-contractor 
and  his  wages  depend  on  his  efforts  and  the  amount  of  work 
completed.  While  the  idea  of  bonuses  seems  to  be  old,  it  has 
not  been  used  to  any  great  extent  especially  among  contract 
labor. 

15  E.  Overhead.  —  Successful  construction  enterprises  are 
those  which  properly  meet  the  present  and  future  needs  of  the 
community,  or  of  the  owner,  conceived  and  designed  by  a  com- 
petent engineer,  with  remuneration  commensurate  to  the  service 
rendered,  built  by  a  competent  and  responsible  contractor,  under 
a  contract  that  is  fair  to  all  concerned,  at  a  price  permitting 

23 


§  15  E  CONTRACTS 

carrying  out  the  spirit  and  intent  of  the  undertaking  without 
friction  or  litigation. 

Trouble  would  largely  be  avoided  if  all  the  parties  involved 
recognized  that  their  interests  are  mutual,  and  if  co-operation  be 
substituted  for  often-prevailing  antagonism. 

Secrecy  upon  the  contractor's  part,  lack  of  frankness,  and 
failure  to  give  real  information;  suspicion  on  the  employer's  part; 
lack  of  consideration  of  the  contractor's  rights  by  both  engineers 
and  owners;  too  much  guessing  at  costs  by  both  contractors  and 
engineers  —  these  have  been  conditions  long-existent,  but  bene- 
fitting  no  one. 

Most  public  work  is  by  law  required  to  be  let  at  a  figure  not 
to  exceed  the  engineer's  estimate.  If  his  estimate  is  wrong,  or 
too  low,  success  to  the  enterprise  cannot  be  fully  achieved.  With 
items  of  material  costs  and  labor,  the  engineer  may  be  reasonably 
familiar,  —  it  is  in  the  costs  of  doing  business,  commonly  known 
as  "  overhead  "  that  the  greatest  discrepancy  will  usually  lie. 

S.  D.  Moore,  before  the  Iowa  Engineering  Society  (Eng. 
Cont.,  49-15)  presented  an  unusually  careful  analysis  of  overhead, 
from  actual  figures,  running  over  a  period  of  five  years  (1911-16) 
for  a  large  amount  of  sewer  construction,  under  favorable  condi- 
tions, which  may  be  regarded  as  typical  of  other  work.  His 
analysis  is  extensively  quoted  below: 

Table  1 

Based  on  contract  price  which  turned  out  to  be  gross  cost,  as  business 
yielded  no  net  profit. 

Average 

Items  of  Overhead  cost  for 

5  years 

1.  Job  expense 1.4 

2.  Maintenance 6 

3.  Plant  repairs _. 1.5 

4.  Small  tools  and  repairs 1.1 

5.  Depreciation 1.0 

6.  Incidental  material 2.4 

7.  Bonds 7 

8.  Insurance 1.9 

9.  Interest  on  jobs ,      1.1 

10.  Discount 3.0 

11.  Promotion  expense 1.8 

12.  Office  expense 6 

13.  Salaries 2.3 

14.  Traveling  expense 1.3 

15.  War  tax 

16.  Interest  on  investment 

24 


CONTRACTING  AS  A  BUSINESS  §  15  G 

Discussion.  —  (1)  Job  Expense  —  includes  freight,  drayage,  transporta- 
tion of  men,  lost  time  on  salaried  positions,  bunk  houses,  storage  and  job 
office  rent. 

(2)  Maintenance  —  repairs  under  guarantee,  preparation  for  acceptance, 
etc. 

(3)  Plant  Repairs  —  on  machines  and  equipment,  tools  lost  and  stolen, 
blacksmithing. 

(4)  Small  Tools. 

(5)  Depreciation  —  should  be  3  or  4  per  cent  at  least. 

(6)  Incidental  Material,  —  as  lumber,   jute,  dynamite,  coal,  gasolene, 
lost  cement  sacks,  rubber  boots,  etc. 

(7)  Surety  Bonds  —  high  because  reckless  bidders  have  not  been  able 
to  finish  their  contracts. 

(8)  Insurance  —  workmen's     compensation,    and     public    liability  in- 
surance. 

(9)  Interest  —  on  money  borrowed  to  carry  on  construction. 

(10)  Discount  —  on  municipal  bonds  issued  in  payment  for  the  work  — 
doubtless  should  be  five  times  the  present  record. 

(11)  Promotion  Expense  —  of  a  varied   sort,  incidental  to  securing  the 
job. 

(12)  Office  Expense,  —  postage,  telegraph,  telephone,  etc. 

(13)  Salaries  —  drawn  by  head  of  firm  who  is  sole  owner,  and  devoting 
entire  time  to  the  business. 

(14)  Traveling  Expense  —  to  bid  on  jobs  not  secured,  to  jobs  under 
construction,  and  after  completion  to  secure  full  settlement. 

(15)  War  Tax  —  special  tax,  for  duration  of  war,  etc. 

(16)  Interest  on  Investment  —  a  part  of  cost,  like   banker's    interest, 
or  merchants'  interest  charge  upon  goods  in  stock.     Not  profit. 

15  F.  Profit.  —  It  will  be  noted  that  this  table  does  not 
mention  Profit.  Yet,  if  "  The  laborer  is  worthy  of  his  hire/' 
then  the  contractor  is  worthy  of  a  profit  over  and  above  a  fair 
salary  and  interest  upon  the  capital  tied  up  in  the  enterprise. 
Assuming  that  we  have  accurate  data,  in  a  given  case,  upon  the 
costs  of  material  and  labor,  what  is  a  fair  profit  to  be  allowed  for  in 
making  a  bid?  Ten  per  cent  of  the  gross  cost,  or  contract  price,  is  a 
common  figure.  Probably  this  is  not  enough  to  cover  the  hazards 
usually  involved.  Let  us  proceed  with  an  analysis  to  arrive  at 
a  proper  figure.  It  will  be  most  practicable  to  use  the  cost  of 
labor  and  materials  as  the  basis  of  discussion. 

15  G.  The  table  above  is  by  the  author  increased  in  items 
(10),  (13),  and  (16),  the  latter  being  interest  on  capital  invest- 
ment of  about  4  %  only,  and  the  total  footing  raised  to  24  %.  The 
same  records  which  yielded  this  statement  of  overhead  showed 
that  labor  and  materials  cost  76  %  of  the  total  cost  of  the  project. 
But  since  overhead  was  also  24  %  of  the  total  cost,  this  shows  over- 
head as  f-J ,  or  31.7  %,  of  the  cost  of  labor  and  materials.  Hence 
this  amount,  being  included  in  the  estimate,  shows  that  the  bid, 
without  profit,  must  be  131.7  %  of  the  cost  of  materials  and  labor. 

25 


§  15  G  CONTRACTS 

As  we  are  figuring  to  make  the  profit  10  %  of  the  gross  price,  and 
not  10%  of  the  net  cost,  we  shall  have  10%  of  ^f,  or  131.7%, 
which  is  14.7%.  Adding  to  131.7  gives  146.4%  of  net  cost  of 
labor  and  materials,  as  the  bidding  price  to  yield  the  contractor  a 
net  profit  of  10%  on  the  gross  cost.  In  view  of  the  numerous 
irreducible  uncertainties,  probably  10  %  profit  is  in  fact  too  small 
a  margin  of  safety  if  the  contractor  is  to  remain  in  business.  To 
allow  him  15%,  instead  of  10,  will  mean  adding  53.9%  to  his 
material  and  labor  costs  instead  of  46.4  %  as  above. 

The  foregoing  analysis  will  show  that  engineers  who  merely 
add  15  %  "  profit  "  (?)  to  their  estimates  of  labor  and  materials  are 
unfair  to  every  party  to  the  prospective  construction  contract, 
for  "  overhead  "  like  "  death  and  taxes  "  is  something  no  con- 
tractor can  get  away  from  whether  recognized  or  not.  Failure  to 
include  it  leads  to  disaster.  If  the  foregoing  figures  seem  high, 
it  should  be  noted  that  manufacturing  lines  often  carry  as  much 
as  70%  overhead  and  selling  expense  above  the  direct  cost  of 
factory  production. 

Contractors  often  feel  that  they  cannot  afford  to  have  their 
real  costs  known.  If  in  fact  they  made  a  fair  profit  on  their  work, 
and  the  engineer  knew  it,  then  the  next  estimate  he  was  called 
to  bid  upon  would  be  cut  so  low  as  to  eliminate  his  profit.  '  Again 
the  question:  Is  contracting  a  legitimate  business  undertaking? 
Can  the  engineer  expect  the  contractor  to  regularly  do  high-grade 
work  at  a  continued  financial  loss?  Can  the  owner  expect  to 
always  get  something  for  nothing?  The  remedy  appears  to 
embrace  the  following: 

Let  the  contractor  share  with  the  engineer  his  knowledge  of 
actual  costs;  let  the  engineer  recognize  that  overhead  is  as  real 
and  unavoidable  an  element  of  cost  as  labor  or  materials,  and  see 
that  his  estimate  makes  a  fair  allowance  for  it,  as  well  as  for  the 
contractor's  profits;  and  let  the  public  recognize  that  contracting 
is  a  legitimate  and  necessary  business,  entitled  to  the  same  rewards 
and  recompense  as  the  merchant,  manufacturer,  farmer,  or  pro- 
fessional man. 


26 


CHAPTER  II 
CONTRACT  ESSENTIALS 

Engineering  contracts  must  be  practicable;  they,  should  also  be  equitable. 
Ignorance  of  the  legal  status  of  the  individuals  concerned,  i.e.,  lack  of 
knowledge  of  what  the  law  will  assist  them  to  secure,  and  of  those  matters 
wherein  it  will  refuse  its  aid,  is  probably  a  most  potent  cause  for  imprac- 
ticable contracts.  If  the  engineer  is  to  recognize  the  legal  elements  in 
the  situations  which  arise,  he  must  study  systematically  the  leading  ele- 
—  ments  of  the  law  of  contracts.  Persons  having  power  to  enter  into  bind- 
ing contracts,  persons  not  having  such  power,  the  varieties  of  subject 
matter  about  which  lawful  contracts  may  be  made,  unlawful  contracts  and 
their  consequences,  the  ideals  of  the  common  law  regarding  contracts,  and 
reasons  why  contracts  opposed  to  them  are  illegal,  methods  of  enforcing 
lawful  contracts,  kinds  of  "  consideration,"  and  what  is  meant  by  "  meet- 
ing of  the  minds";  —  these  topics  are  extensively  developed  in  this 
chapter. 

16.  Practicable  and  Equitable  Contracts.  — "  Many  contracts  appear 
to  be  drawn  solely  on  the  assumption  that  the  owner's  interests  must  be  most 
carefully  guarded  against  the  contractor's  failure  to  fulfill  his  agreements 
properly.  Under  agreements  of  this  type,  the  contractor  generally  takes 
chances  that  the  overreaching  clauses  will  not  be  strictly  enforced,  and  that 
profits  lost  on  unfair  clauses  can  be  made  up  on  '  extras.'  But  if  there  is 
close  competition  with  only  a  small  margin  of  profit  at  best,  the  contractor 
becomes  more  troublesome  over  small  omissions  or  errors,  and  naturally 
resists  as  far  as  possible  the  exactions  he  is  subjected  to  when  the  literal  ful- 
fillment of  ambiguous  conditions,  and  '  taking  the  pound  of  flesh  '  is  insisted 
upon. 

"  A  just  contract  is  equally  valuable  to  the  owner,  the  contractor,  and  to 
the  engineer.  If  it  is  accurate  and  free  from  ambiguity,  it  cheapens  the  cost  of 
work  by  eliminating  the  necessity  for  bidding  sums  to  cover  every  possible 
contingency  and  uncertainty.  It  broadens  real  competition,  and  encourages 
lower  estimates.  It  insures  more  rapid  erection,  and  acts  as  a  powerful  regu- 
lator of  the  mutual  understanding  and  confidence  in  the  fairness  of  all  the 
parties,  —  and  fairness,  like  oil  to  machinery,  is  necessary  to  prevent  friction." 
(Bamford,  Proc.  Am.  Soc.  C.  E.  XXXV,  p.  1319.)  (See  §  11.) 

It  is  evident  that  the  contract-writing  engineer  must  under- 
stand the  technical  and  legal  requirements  of  his  subject,  or  his 
work  will  be  impracticable.  It  is  believed,  moreover,  that  many 
inequitable  and  unjust  provisions  now  current  in  engineering 
contracts  exist  because  of  an  over-zeal  on  the  part  of  contract- 
writers  to  protect  the  interests  of  their  clients,  and  because  the 
just  objections  of  the  contractor  to  unfair  requirements  have  not 
been  presented  in  a  candid  and  impersonal  fashion.  Contract- 
writers  have  been  bigoted  because  ignorant  and  unjust  through 
lack  of  information.  To  give  due  consideration  to  the  rights  of 

27      • 


§  17  CONTRACTS 

all  the  parties  to  the  various  types  of  contracts  is  the  present 
aim.  This  requires  that  the  strictly  legal  aspects  of  the  various 
topics  must  first  be  considered,  after  which  some  of  their  ap- 
plications to  engineering  practice  may  be  briefly  stated.  We  are 
brought  then  at  the  outset  face  to  face  with  the  question,  "What 
is  a  contract?  " 

17.  Contract  Defined.  —  A  contract  is  an  agreement  between 
competent  parties,  enforceable  at  law,  whereby  each  acquires  a 
right  to  what  is  promised  by  the  other.     Two  persons  can  promise 
each  other  whatever  fancy  dictates,  but  unless  such  promises  are 
enforceable  at  law,  they  form  no  contract;  and  unless  those  learned 
in  the  law  can  distinguish  certain  technical  elements  in  the  promises, 
the  law  will  not  compel  either  party  to  carry  out  the  terms  of  his 
promise. 

18.  CONTRACT  ESSENTIALS.  —  If  all  persons  were  hono- 
rable, having  made  promises  they  would  keep  them.     But  as  many 
are  strongly  disinclined  to  live  up  to  their  agreements,  society  has 
provided  legal  means  for  compelling  them  to  do  so.     In  the  in- 
terests of  justice,  however,  it  becomes  necessary  to  carefully  weigh 
the  circumstances  under  which  the  agreement  was  entered  into  to 
ascertain  whether  the  parties  intended  it  to  be  of  the  legal  and 
binding  sort;    and  when  such  intention  is  found,  to  determine 
whether  the  contract  is  of  such  a  nature  that  it  ought  in  reason 
and  justice  to  be  enforced.     Thus  in  the  formation  of  a  contract 
it  is  universally  recognized  as  essential  that  there  be: 

1.  Competent  Parties. 

2.  A  Lawful  Subject  Matter. 

3.  A  Proper  Consideration. 

4.  A  Genuine  Agreement,  or  Mutual  Assent. 

These  elements  will  be  developed  at  some  length  and  the 
student  is  urged  to  master  their  significance  at  the  outset  in  order 
that  he  may  follow  more  intelligently  the  discussion  of  numerous 
practical  cases  that  will  be  given.  After  learning  something  of 
the  doctrines  and  terminology  of  contracts  in  general  some  char- 
acteristic details  of  engineering  contracts  may  then  profitably  be 
discussed. 

19.  It  should  always  be  borne  in  mind,  however,  that  in  the 
eye  of  the  law  engineering  contracts  are  no  different  from  any 
other  business  agreements.    By  the  term  "  engineering  contracts  " 

28 


CONTRACT   ESSENTIALS  §  21 

we  are  here  referring  to  contracts  which  directly  concern  engineer- 
ing projects,  and  with  which  every  engineer  sooner  or  later  comes 
in  contact. 

If  the  student  or  engineer  thoroughly  comprehends  a  few 
basic  principles  common  to  all  contracts,  he  possesses  a  point  of 
vantage  from  which  to  view  the  numerous  detailed  and  highly 
elaborated  provisions  of  important  engineering  contracts.  Knowl- 
edge of  this  character  will  help  him  to  discern  their  relative  im- 
portance, and  to  give  them  a  sounder  and  wiser  interpretation. 
We  must  creep  before  we  run,  and  numerous  cases  from  other 
fields  are  therefore  dwelt  upon;  from  these  the  habit  of  de- 
ductive reasoning  may  be  applied  by  the  student  to  point  the 
solution  of  many  engineering  problems  arising  under  analogous 
conditions. 

20.  BASIC  POSITION  OF  CONTRACTS.— Contracts  are  as 
old  as  civilization.    They  form  one  of  the  greatest  foundation  stones 
upon  which  society  is  erected.     It  is  natural,  therefore,  to  find 
contracts  permeating  every  phase  of  our  modern  society.     There 
are  many  different  types,  each  peculiarly  adapted  to  the  situation 
in  which  we  find  it.     Thus  there  are  contracts  of  sale,  of  marriage, 
contracts  by  which  one  undertakes  to  build  or  make  something, 
to  render  services,  to  transport  persons  or  goods,  contracts  of  part- 
nership, etc.     Under  and  through  them,  however,  we  shall  discern 
the  threads  of  these  legal  "  elements,"  the  indispensable  ground- 
work of  them  all. 

21.  Legal  Rules.  —  The  common  law  *  abounds  in  instances 
where  a  general  statement  is  made  expressing  the  broad  and  basic 

*  "  Common  Law." 

The  great  Chief  Justice  Shaw  of  Massachusetts,  in  1854,  thus  defined  the 
meaning  of  these  words:  "  It  is  one  of  the  great  merits  and  advantages  of  the 
common  law  that  instead  of  a  great  mass  of  practical  detailed  rules  established 
by  positive  provisions  and  adapted  to  the  precise  circumstances  of  particular 
cases  which  would  become  obsolete  and  fail  when  the  practice  or  course  of 
business  to  which  they  apply  should  cease  or  change,  the  common  law  consists 
of  a  few  broad  and  comprehensive  principles,  founded  on  reason,  natural 
justice,  and  enlightened  public  policy,  modified  and  adapted  to  the  circum- 
stances of  all  the  particular  cases  which  fall  within  it. 

"These  general  principles  of  equity  and  policy  are  rendered  precise, 
specific  and  adapted  to  the  particular  use  by  usage,  which  is  of  itself  proof  of 
their  general  fitness  and  practical  convenience,  but  still  more  by  judicial 
exposition;  so  that  when  in  the  course  of  judicial  proceedings  by  tribunals 
of  the  highest  authority,  the  general  rule  has  been  limited,  modified,  and 
applied  according  to  the  particular  cases,  such  judicial  exposition  when  well 
settled,  and  acquiesced  in,  becomes  itself  a  precedent  and  forms  itself  a  rule 
of  law  for  future  cases  under  like  circumstances."  (See  also  Appendix  Note  1.; 

29 


§  22  CONTRACTS 

principle,  and  then  the  primary  rule  is  immediately  qualified, 
lessened,  and  pared  down,  with  a  view  to  applying  the  dogma  to 
the  case  in  point.  To  one  trained  in  the  natural  and  mathematical 
sciences,  this  appears  unscientific  and  haphazard,  since  the  laws 
of  nature  are  unchangeable.  The  engineering  student  must 
accommodate  himself,  however,  to  this  method  and  learn  to  give 
the  same  careful  thought  to  the  qualifications  of  a  rule  as  to  the 
primary  rule  itself. 

22.  TECHNICAL  TERMS  IN  LAW — Every  art  and  craft 
has  its  technical  terminology  and  the  universality  of  the  custom 
is  abundant  proof  of  its  usefulness.     To  the  unreflective  person 
it  may  appear  that  the  principal  object,  in  the  invention  of  this 
technology  has  been  hopelessly  to  befog  the  subject  for  the  un- 
learned.    A  closer  analysis,  however,  shows  that  a  single  generally- 
accepted  technical  term  conveys  with  precision  the  full  import 
of  an  idea  which  a  whole  paragraph  expressed  in  non-technical 
language  could  scarcely  contain.     It  will  be  observed,  also,  that 
the  more  abstruse  and  subtle  the  shades  of  meaning  exhibited  by 
the  subject  matter,  the  more  elaborate  and  complex  is  its  technical 
terminology.     In  the  study  of  the  law  many  striking  examples 
of  this  are  found,  and  these  remarks  are  merely  intended  to  put 
the  student  early  upon  his  guard,  lest  he  needlessly  stumble. 

When  a  technical  term  is  freshly-coined,  or  when  the  term 
differs  plainly  from  any  other  word  in  the  language,  it  is  so  recog- 
nized wherever  met,  and  no  great  difficulty  is  encountered,  save  in 
the  expenditure  of  mental  effort  in  learning  its  meaning.  But 
when,  as  in  the  case  of  legal  phrases,  old  words,  entirely  unchanged, 
are  used  with  a  distinct  technical  meaning,  the  pitfalls  of  the 
student  are  many  times  multiplied.  Because  of  this  tendency 
of  legal  terminology  to  employ  commonly-used  words  and  phrases 
in  a  purely  legal  sense,  this  opportunity  has  been  taken  to  em- 
phasize the  importance  of  a  familiarity  with  such  terminology. 
In  the  discussions  of  principles  that  follow,  technical  terms  have 
been  freely  employed  and  explained.  It  is  believed  that  the 
value  of  this  plan  will  be  constantly  apparent.  Examples  of  the 
most  confusing  of  such  technical  terms  are:  —  consideration, 
fraud,  misrepresentation,  negligence,  prescription,  conversion, 
deed,  mistake,  etc. 

23.  (1)  COMPETENT  PARTIES.  — In  general  it  may  be 
said  that  any  one  can  make  a  binding  contract.     The  immediate 

30 


CONTRACT   ESSENTIALS  §24 

exceptions  to  this  general  rule  are  that  infants  (persons  under 
twenty-one  years  of  age),  married  women,  lunatics,  and  drunken 
persons  cannot  make  binding  contracts.* 

The  contracts  of  infants  are  voidable,  that  is,  they  may  be  avoided  or 
declared  of  no  effect  if  the  infant  so  desires;  or  he  may  choose  to  affirm  the 
contract  when  he  attains  his  majority.  An  infant  may  be  charged,  however, 
upon  an  implied  (see  §§  68-70  Implied  Contracts)  contract  for  the  value  of 
necessities  of  life  bought  by  him,  and  if  he  has  obtained  possession  of  goods 
through  a  voidable  contract,  he  can  not  deny  the  legality  of  the  contract  OD 
the  grounds  of  his  infancy,  and  still  keep  the  goods. 

The  disability  of  married  women  to  enter  into  binding  con- 
tracts has  been  removed  in  nearly  every  State  by  "  enabling 
statutes/'  so  that  now  married  women  may  contract  with  prac- 
tically the  same  freedom  as  men,  except  that  in  some  States  they 
cannot  contract  with  their  husbands. 

Contracts  made  with  lunatics  or  drunken  persons  are  held  in 
some  States  to  be  binding  if  made  in  good  faith,  while  in  others 
they  are  regarded  as  absolutely  void.  If  a  man  is  so  intoxicated 
or  mentally  incompetent  that  he  does  not  know  what  he  is  doing? 
clearly  there  can  be  no  real  agreement. 

It  should  be  observed  thus  early  that  the  only  persons  upon 
whom  the  terms  of  a  contract  are  binding  are  the  parties  actually 
entering  into  the  agreement.  Exceptions  to  this  rule  occur  in  a  few 
peculiar  contracts  contained  in  deeds  of  land,  when  the  contract  is 
said  to  "  run  with  the  land."  In  these  exceptional  cases  persons 
other  than  the  original  parties  to  the  contract  are  bound  by  it. 

24.  (2)  LAWFUL  SUBJECT  MATTER.  — To  ascertain  if 
the  subject  matter  of  a  proposed  contract  is  legal  (that  is, 
whether  the  parties  have  a  legal  right  to  do  the  thing  contem- 
plated) frequently  requires  a  considerable  knowledge  of  legal 
relationships.  Inasmuch  as  such  knowledge  is  often  needed  by 
the  engineer  in  determining  the  legality  of  proposed  contracts, 
lawful  subject  matter  will  be  treated  at  some  length. 

The  following  are  some  of  the  more  prominent  grounds  of 
illegality: 

(a)  That  the  proposed  contract  violates  some  State  or  Federal 
statute: 

(6)  That  it  is  contrary  to  the  rules  of  common  law;  or 

(c)  That  it  is  forbidden  by  public  policy. 

\ 

*  Corporations  have  limited  contractural  powers,  to  be  discussed  in  Ch.  VI. 

31 


§  25  CONTRACTS 

25.  (a)  Contracts  in  Violation  of  Statutes.  Crimes  are  for- 
bidden by  statute,  and  by  the  common  law,  also;  a  contract  to 
commit  a  crime  is  illegal.  A  difficult  phase  of  illegality  is  where 
statutes  exist  which  bear  directly  upon  the  proposed  contract,  so 
that  all  the  statutory  provisions  must  be  complied  with.  Con- 
tracts failing  to  comply  with  such  provisions  are  void. 

Legislative  Restrictions  of  this  character  are  imposed  upon  municipal  cor- 
porations, counties,  school  districts,  and  educational  and  other  Boards  charged 
with  public  enterprises. 

The  legislative  enactment  or  constitutional  provision  which  provides 
for  such  "  legislative  restrictions  "  generally  expressly  limits  the  extent  of  the 
powers  of  such  corporate  bodies,  while  frequently  requiring  the  observance 
of  specific  formalities  before  valid  and  binding  contracts  can  be  entered  into. 

Certain  provisions  which  are  common  in  such  statutes  and  ordinances 
are:  that  the  work  shall  be  advertised  and  awarded  to  the  lowest  bidder;  that 
the  work  must  be  authorized  by  the  City  Council  after  public  notice  and 
hearings;  that  a  certain  proportion  of  abutting  property  owners  must  combine 
to  petition  for  an  improvement;  etc. 

Any  requirement  that  the  Legislature  may  have  incorporated  into  the 
authorizing  statute,  no  matter  how  trifling  and  unimportant  it  may  appear 
to  the  average  business  man,  may,  if  difficulties  arise,  be  regarded  by  the 
Court  as  an  essential  "  condition  precedent."  (See  §  74.) 

To  disregard  such  provisions  is  to  invite  serious  trouble. 
After  a  large  expenditure  has  been  made  by  the  contractor  he 
may  find  that  the  whole  contract  is  ultra  vires  (i.e.,  in  excess  of 
the  real  legal  powers  possessed  by  the  party  for  whom  the  con- 
tractor is  working).  The  relief  in  such  a  case  may  be  nothing 
short  of  a  special  Act  of  the  Legislature,  authorizing  the  contract 
as  made.  To  obtain  relief  of  this  sort,  however,  is  frequently 
next  to  impossible. 

A  pitfall  of  this  sort  very  easy  to  fall  into  is  an  instance  where  a  municipal 
corporation  has  a  statutory  debt  limit  which  can  not  lawfully  be  exceeded. 
The  contractor  who,  unwittingly,  enters  into  a  contract  to  do  a  paving  job  or 
other  work  of  municipal  improvement,  may  discover  when  the  work  is  in  large 
part  done  that  the  debt  limit  has  been  exceeded.  While  there  may  be  com- 
plicated and  extensive  legal  expedients  which  will  in  a  measure  rescue  him  from 
his  predicament,  it  is  evident  that  the  contractor  should  inform  himself  as  to 
all  legislative  restrictions  before  entering  into  such  a  contract.  (See  §  264.) 

The  law  unsympathizingly  says  that  the  two  persons  contract 
with  each  other  "at  their  peril,"  or  "at  arm's  length."  This 
means  that  each  is  bound  to  satisfy  himself  in  advance  as  to  the 
legal  competency  and  responsibility  of  the  other  party,  or  else 
take  the  consequences  of  failing  to  do  so. 

"  The  [statutory]  restrictions  and  conditions  precedent  prevailing  in  these 
various  States  and  nations  are  so  numerous,  so  exacting,  so  extraordinary 
that  no  corporation  or  well-informed  business  man  will  undertake  a  project 

32 


CONTRACT   ESSENTIALS  §  29 

of  any  importance  without  the  advice  and  counsel  of  a  local  attorney.  To  do 
so  is  suicidal  to  the  best  interests  of  the  undertaking."  (Waddell  &  Wait, 
Spec.  &  Cont.  165.) 

As  has  been  indicated  above,  the  list  of  restrictions  is  a  long 
one  with  a  probable  tendency  to  lengthen.  It  is,  in  fact,  so  long 
that  we  have  hardly  done  more  than  indicate  the  direction  in  which 
to  look  for  them. 

26.  Another    restriction    sometimes    of   vital    importance    is 
the  so-called   "  Lien  and  Labor "   laws.     These  laws  are  local 
statutes  primarily  designed  for  the  protection  of  mechanics  by 
giving  them  "  liens  "  (roughly  defined  as  "  first  claims  ")  on  the 
finished  work  for  their  compensation.     These  statutes  may  also 
contain  other  provisions  as  to  the  kind  of  labor  which  shall  be 
employed  upon  public  work,  the  hours  of  labor,  and  even  the  rate 
of  wages.     Evidently  a  failure  to  take  account  of  such  provisions 
may  cause  a  contractor  to  submit  a  bid  far  too  low,  and  therefore 
result  in  his  ruin,  or  in  the  failure  of  the  whole  enterprise. 

27.  Contracts  in  Restraint  of  Trade  compose  another  class 
of  illegal  contracts.     The  most  famous  American  statute  upon 
this  is  the  Sherman  Anti-Trust  Act.     This  applies,  however,  only 
to  interstate  commerce,  and  no  comment  need  here  be  made  upon 
it.     Brief  comment  will  be  made  upon  other  typical  aspects  of 
the  same  principle. 

Suppose  two  gas  companies,  owning  equal  and  exclusive  rights  under  a 
municipal  franchise,  combine  and  agree  to  apportion  the  city  between  them, 
for  the  purpose  of  avoiding  competition  and  raising  prices.  Can  they  enforce 
such  a  contract  in  the  courts?  No,  for  this  would  plainly  be  in  restraint  of 
trade,  tending  to  promote  a  monopoly,  and  hence  contrary  to  public  policy 
(121  111.  530).  In  cases  of  this  class  the  kind  of  business  involved  will  be 
especially  considered  by  the  court,  and  if  the  parties  are  public  service  cor- 
porations the  rights  of  the  public  to  the  benefits  of  free  competition  will  be 
strictly  upheld.  The  same  principle  has  been  applied  where  railroad  com- 
panies had  agreed  to  go  into  partnership  or  to  pool  their  earnings,  these  con- 
tracts being  held  invalid  on  the  ground  that  thus  the  public  was  deprived  of 
the  benefits  of  competition. 

28.  "  Sunday  Laws  "  to  the  effect  that  a  contract  entered 
into  or  to  be  performed  on  Sunday  is  void  will  sometimes  demand 
attention.     No  attempt  will  be  made  here  to  cover  the  extremely 
numerous  and  conflicting  statutes  and  decisions  made  upon  this 
matter  in  the  various  States,  since  in  some  of  them  the  contract 
would  be  held  good,  but  in  others  wholly  bad. 

29.  Statute  of  Frauds.  —  The  most  famous  statutory  regu- 
lation concerning  the  making  of  enforceable  contracts  is  known 

33 


§  30  CONTRACTS 

as  the  "  Statute  of  Frauds."  This  is  a  statute  existing  in  prac- 
tically all  of  the  States  and  is  copied  substantially  from  an  English 
statute  of  that  name,  enacted  in  1677.  It  was  intended  to  pre- 
vent frauds  and  perjury,  and  to  lessen  the  risk  of  mistakes  arising 
from  the  defective  and  imperfect  recollection  of  witnesses,  by 
requiring  that  certain  contracts  should  be  in  writing,  or  else  they 
should  not  be  allowed  to  be  proved  in  court.  (9  Allen,  Mass.  8.) 

The  Statute  of  Frauds  has  very  numerous  provisions.  Those 
of  peculiar  interest  to  the  engineer  require  that  contracts  relating 
to  the  sale  of,  or  pertaining  to",  any  interest  in  or  concerning  land 
shall  be  in  writing.  (See  §  215  Deeds.) 

It  is  also  provided  that  an  agreement  which  by  the  intention 
of  the  parties  is  not  to  be  performed  within  one  year,  or  which  is 
impossible  of  being  performed  within  that  time,  cannot  be  enforced 
unless  in  writing.  (96  U.  S.  404*.) 

Another  important  provision  of  the  Statute  is  to  the  effect 
that  contracts  for  the  sale  of  "  goods,  wares,  and  merchandise" 
to  the  amount  of  $50,  by  the  old  statute,  shall  not  be  enforceable 
unless  in  writing.  In  some  States  this  amount  has  been  made 
$30,  and  again,  by  the  recent  Sales  Acts  adopted  by  several  States, 
the  amount  has  been  increased  to  $500.  There  are  important 
exceptions  to  the  last  provisions  above  which  will  be  more  fully 
analyzed  in  discussing  the  Statute  under  Sales,  in  Chapter  VII. 

Of  course  a  countless  number  of  the  minor  contracts  of  everyday  life  are 
made  and  fully  carried  out  without  a  scrap  of  writing.  Many  of  these  are 
"  implied  "  contracts,  no  words  passing  between  the  parties  at  all;  for  example, 
buying  a  ride  upon  a  street-car.  In  the  absence  of  writing,  if  there  is  any 
verbal  communication  whatever,  the  contracts  are  known  as  "  oral  "  agree- 
ments. In  the  preparation  of  engineering  construction  contracts  in  which  we 
are  primarily  interested,  it  is  not  so  much  the  requirements  of  the  Statute  of 
Frauds  which  puts  the  instrument  into  writing  as  it  is  common  prudence,  since 
the  multiplicity  of  terms  and  details  upon  an  extensive  job  could  not  be  safely 
entrusted  to  so  precarious  a  thing  as  the  human  memory. 

30.  (6)  CONTRACTS  OPPOSED  TO  COMMON  LAW.  - 
The  tenets  of  the  common  law  are  so  well  defined,  and  if  sub- 
ject to  change  at  all  acquire  new  aspects  by  such  imperceptible 
stages  of  growth,  that  common  law  requirements  will  cause  less 
difficulty  to  the  engineer  than  statutory  prohibitions,  for  the  va- 
garies of  statute-makers  are  limitless,  and  no  man  can  prophesy 
what  may  be  enacted  next.  Every  one  is  aware  that  contracts 
induced  by,  or  based  upon,  fraud  are  illegal  and  unenforceable, 
though  there  may  be  no  statutes  to  that  effect  in  that  particular 

34 


CONTRACT   ESSENTIALS  §  32 

jurisdiction.  Other  examples  of  agreements  rendered  illegal  by 
the  rules  of  the  common  law  are  contracts  to  defraud  creditors; 
the  selling  of  articles  upon  false  representations,  or  under  spuri- 
ous trademarks  or  labels;  fictitious  bidding  at  auctions;  and 
contract  resulting  from  collusion  and  fraud  between  bidders  pro- 
posing to  do  work. 

31.  Contracts  to  Bind  Third  Parties.  —  Mr.  J.  B.  Johnson 
points  out  in  his  Contracts  and  Specifications,  that  under  the  head- 
ing of  contracts  contrary  to  the  common  law  the  engineer  will  be 
especially  concerned  with  changes  made  in  contracts  by  the  prin- 
cipals (contractor  and  owner),  without  the  consent  of  the  sureties 
or  bondsmen.     It  is  a  well-established  practice  in  engineering  con- 
tracts for  the  owner  to  require  a  surety  bond  from  each  bidder, 
that  in  the  event  of  the  contract  being  entered  into  with  any 
particular  bidder,  the  latter  will  fully  and  faithfully  perform  all 
its  provisions.     This  custom  arose  because  the  engineering  con- 
tractor was  frequently  a  person  of  limited  means  and .  financial 
responsibility,  and  the  owner  felt  the  need  of  outside  assurance 
that  the  contractor  would  not  quit  the  job  midway,  and  thus 
cause  the  owner  great  annoyance,  delay,  and  expense  to  secure 
its  completion. 

A  surety  bond  is  a  contract  collateral  to  the  construction  con- 
tract, and  the  effect  is,  untechnically  stated,  that  the  bondsman 
wagers  the  amount  of  the  bond  that  the  contractor  will  perform 
with  exactness  and  completeness  all  the  provisions  of  the  agree- 
ment. If  the  contractor  fails  to  perform  fully,  the  owner  may 
look  to  the  bondsman  for  indemnification.* 

32.  Thus  where  a  surety  bond  is  given,  a  three-cornered  situ- 
ation results:  —  first,  there  is  a  contract  between  the  owner  and 
the  contractor  concerning  the  work  to  be  done;  second,  a  contract 
between  the  surety  and  the  owner  that  the  contractor  will  fully 
perform,  etc.;   and  third,  an  implied  contract  between  the  surety 
and  the  contractor  that  in  the  event  of  the  surety's  having  to 
pay  anything,  he  in  turn  shall  be  indemnified  by  the  contractor. 
Hence  as  the  terms  of  the  construction  contract  constitute  the 
essence  of  the  second  contract,  and  as,  furthermore,  the  surety 
enters  into  the  latter  contract  of  his  own  volition  and  free  consent, 
it  would  be  entirely  wrong  and  unjust  to  allow  the  owner  and 
contractor  to  so  modify  these  terms  without  the  surety's  consent 

*  See  Appendix  Note  15.     Suretyship. 

35 


§  33  CONTRACTS 

as  to  place  an  entirely  new  obligation  upon  him.  Such  a  modi- 
fication of  the  terms  might  result  in  great  loss  to  the  surety.  The 
rule  is  simple  enough,  that  while  two  persons  may  contract  and 
bind  themselves  as  they  choose,  they  cannot  by  their  acts  bind  a 
third  or  independent  person  against  his  will.  (The  law  concerning 
a  third  party  who  is  an  agent  will  be  discussed  in  Chapter  IV  under 
Agency.) 

This  statement  of  the  relations  existing  between  the  three 
parties  will  make  the  legal  consequences  of  an  alteration  in  the 
terms  of  the  original  contract  clearer  to  the  student.  Further- 
more, he  will  more  readily  grasp  the  significance  of  a  clause  in  a 
contract  providing  that  alteration  of  subordinate  clauses  shall  not 
invalidate  the  contract  nor  release  the  sureties. 

The  possible  results  of  an  alteration  of  the  terms  of  a  contract 
containing  no  provision  therefor  may  well  be  briefly  summarized 
as  follows:  —  a  material  change  made  in  the  original  contract  by 
the  principals  annuls  both  the  contract  and  the  bond;  if  made 
without  the  surety's  consent  it  may  impose  an  obligation  upon 
him  which  he  is  not  willing  to  assume,  and  to  do  this  is  wrong  and 
unlawful.  This  is  because  only  the  parties  to  contracts  are 
bound  by  their  terms.  The  original  contract  having  been  de- 
stroyed by  the  material  alterations,  and  the  attempted  new  con- 
tract of  surety  being  illegal,  the  bondsman  is  released,  and  the 
owner  is  without  the  protection  of  the  bond. 

It  may  be  said  in  passing,  that  in  the  field  of  engineering  con- 
tracting the  place  of  the  individual  bondsman  is  being  more  and 
more  taken  by  Bonding  and  Surety  Companies,  with  results,  in 
general,  more  satisfactory  to  all  parties  concerned. 

33.  (c)  CONTRACTS  OPPOSED  TO  PUBLIC  POLICY.— 
This  subdivision  presents  no  clear  outline  of  demarcation  from 
the  preceding  one,  since  the  doctrines  of  public  policy  are  somewhat 
elastic  and  may  rarely  appear  in  statutory  law.  For  clearness, 
however,  it  is  well  to  separate  it.  As  a  body,  its  outlines  are  not 
sharply  defined,  and  its  boundaries  are  being  slowly  extended. 
A  learned  English  judge  puts  it  thus:  "  Public  policy  is  a  quantity 
that  varies  with  habits,  capacities,  and  opportunities  of  the 
public  and  the  usages  of  trade."  Another  says,  "  Wherever  any 
contract  conflicts  with  the  morals  of  the  times,  and  contravenes? 
any  of  the  established  interests  of  society,  it  is  void  as  against 
public  policy." 

36 


CONTRACT   ESSENTIALS  §  34 

There  is  an  illustrative  case  in  139  Fed.  Reporter,  780,  where  the  U.  S. 
War  Dep't  ordered  a  Steel  Co.  to  remove  a  large  quantity  of  slag  it  had  pre- 
viously dumped  into  the  Monongahela  River,  at  Pittsburg. 

Two  dredging  contractors  were  asked  to  bid,  and  they  did  so.  They 
acted  in  collusion,  and  tendered,  respectively,  $1.60  and  $1.70  per  yard,  but 
agreed  between  themselves  that  each  was  to  do  half  the  work  if  either  one 
received  the  contract.  The  Steel  Co.  rejected  these  bids  as  being  too  high, 
and  a  subsequent  modification  of  the  requirements  by  the  War  Dep't  caused 
a  bid  for  $1.25,  made  by  one  of  the  contractors,  to  be  accepted.  The  work  was 
done  and  duly  paid  for.  The  actual  cost  was  9c.  per  yard,  and  the  second 
contractor  sued  the  first  for  an  accounting  in  accordance  with  the  private 
agreement  between  them.  The  U.  S.  Court  refused  to  entertain  the  suit,  on 
the  ground  that  it  was  a  conspiracy  to  defraud  the  Steel  Co.,  and  was  thus 
illegal  and  void.  The  Court  remarks:  "Viewed  from  the  standpoint  of 
morals,  square  dealing  and  commercial  integrity,  combinations  for  collusive, 
misleading  biddings,  wherever  made,  cannot  be  approved." 

The  right  of  courts  to  declare  a  contract  void  because  contrary 
to  public  policy  is  a  very  delicate  and  undefined  power  and  should 
be  exercised  only  in  cases  free  from  doubt;  prejudice  to  the  public 
interest  must  clearly  appear  before  a  court  is  justified  in  pronounc- 
ing an  agreement  void  upon  this  account.  (65  Vt.  431.) 

Contracts  bearing  upon  Public  Policy  form  a  very  extensive 
category,  while  the  outline  just  given  of  the  principles  governing 
them  is  meagre.  A  few  instances  where  the  practice  is  well  settled 
will  assist  the  engineering  student  to  grasp  the  general  trend  of 
this  question,  the  details  of  which  often  engage  the  keenest  study 
of  statemen  and  jurists.  Plainly  included  in  contracts  opposed 
to  public  policy  are  those  whose  enforcement  would  be  detrimental 
to  the  public  welfare,  such  as  contracts  to  obstruct  justice,  to 
encourage  litigation,  or  to  restrain  freedom  of  trade,  as  already 
noted.  (See  §  27.)  '} 

So  also  are  certain  provisions  in  engineering  contracts  which 
confer  excessive,  or  highly  arbitrary  powers  upon  the  engineer, 
or  provisions  which  bargain  away  the  contractor's  legal  rights. 
The  public  policy  element  is  found  in  the  theory  that  lawful 
agreements  cannot  be  made  which  tend  to  oust  the  courts  of  their 
proper  jurisdiction,  since  these  agreements  deprive  the  parties 
of  their  legal  right  to  have  their  grievances  and  disputes  heard  by 
a  properly  constituted  tribunal,  such  as  a  court  of  law.  Agree- 
ments, however,  which  make  resort  to  arbitration  a  condition 
precedent  (see  §  73)  before  going  to  law  are  held  valid.* 

34.  With  reference  to  the  functions  of  the  State,  contracts  which  tend  to 
interfere  with  or  control  the  legislative  or  executive  departments  of  govern- 
ment, or  such  as  tend  to  the  obstruction  or  perversion  of  the  administration 

*  See  Appendix  Note  2. 

37 


§  35  CONTRACTS 

of  law,  are  all  contrary  to  public  policy.  An  apt  illustration  is  an  agreement 
for  compensation  for  procuring  legislation  made  with  a  member  of  the  legis- 
lative body,  it  being  a  palpably  bad  policy,  as  Mr.  Justice  Field  has  said,  to 
allow  the  legislator's  judgment  to  be  misled,  or  to  substitute  other  motives 
for  his  conduct  than  the  advancement  of  the  public  interests.  To  the  same 
end,  bargains  to  secure  appointment  to  public  office  or  to  divide  the  receipts  of 
such  office  with  a  rival  candidate,  or  for  an  officer  to  agree  to  accept  a  less  com- 
pensation than  that  provided  by  law,  are  void  and  contrary  to  public  policy. 

The  same  is  true  with  reference  to  contracts  looking  toward 
the  obstruction  of  justice.  Examples  of  these  are:  —  agreements 
to  stifle  criminal  proceedings  (as  to  shield,  or  to  acquiesce  in  the 
acts  of  an  embezzler),  or  to  withhold  evidence,  or  agreements 
to  absent  one's  self  from  the  jurisdiction  during  a  trial  so  that 
he  cannot  be  called  into  court  as  a  witness;  contracts  to  invade 
another's  property  rights,  to  maintain  a  nuisance,  to  commit  a 
trespass;  contracts  to  forfeit  one's  legal  rights  (for  instance, 
agreements  often  found  on  railroad  passes  to  relieve  the  Railroad 
Company  from  damages  due  to  its  negligence),  —  all  these  and 
many  other  kinds  of  contracts  may  be  void  as  opposed  to  public 
policy.  (See  Appendix  Note  3  for  Railroad  cases.) 

35.  In  leaving  the  topic  of  lawful  subject  matter,  it  should  be 
said  that  it  is  impossible  to  completely  classify  the  various  sub- 
jects upon  which  lawful  contracts  may  be  made.     They  have, 
in  fact,  been  grouped  and  specialized  to  such  an  extent  as  to 
require  treatment  separately,   as  for  instance,   sales,   insurance, 
negotiable  instruments,  partnership,  landlord  and  tenant,  surety- 
ship, building  agreements,  master  and  servant,  bailments,  carriers, 
and  so  forth.    Around  each  of  these  subjects  has  grown  up  a 
distinct  body  of  rules  and  doctrines,  known  as  the  Law  of  Sales 
or  Insurance,  etc.,  all  presenting  marked  peculiarities  yet  forming 
mighty  branches  of  the  same  parent  trunk  —  the  Anglo-Saxon 
system  of  common  law. 

36.  (3)  CONSIDERATION.  —  Of  the  four  essentials  to  a 
contract,  consideration  is  probably  the  most  difficult  to  analyze 
satisfactorily.     While  certain  instances  of  consideration  will  be 
easily  understood,  others  may  appear  obscure     Consideration  is 
the  act  or  forbearance  of  one  party  which  is  given  in  exchange  for 
the  act  or  promise  of  the  other. 

The  fundamental  idea  is  that  of  an  exchange.  The  promise  must  be 
bought  and  the  one  requisite  is  that  something  must  be  given  for  it  in  exchange 
for  the  obligation  assumed.  To  illustrate,  in  a  contract  of  insurance  the  Com- 
pany promises  to  pay  a  certain  sum  of  money  under  certain  conditions,  the  con- 
sideration for  the  promise  being  the  payment  of  the  premium  by  the  insured 

38 


CONTRACT    ESSENTIALS  §  38 

A  common  test  is,  "  Does  the  plaintiff  (promisee)  suffer  a  legal  detri- 
ment "  f  If  this  can  be  answered  in  the  affirmative  and  if  the  promisor 
(defendant)  requested  the  thing  done  or  given  by  the  plaintiff,  then  the  consid- 
eration is  good  and  will  support  a  binding  contract. 

In  a  famous  New  York  case,  an  uncle  promised  his  nephew  $5000  if  he 
would  not  drink,  swear,  nor  gamble  until  he  was  21.  The  nephew  lived  up 
to  the  bargain,  but  the  uncle  refused  to  pay.  The  court  said  that  the  nephew's 
act  in  abstaining  from  doing  something  which  he  had  a  legal  right  to  do,  con- 
stituted a  legal  detriment,  and  was  a  sufficient  consideration.  Here  the 
exchange  was  the  giving  up  the  right  to  do  these  things  at  the  uncle's  sug- 
gestion and  request;  it  was  an  act  for  a  promise.  (124  N.  Y.  538.)  Other 
illustrations  of  an  act  for  a  promise  are  where  a  landlord  gives  up  possession 
of  the  premises  in  return  for  a  promise  to  pay  the  rent;  a  servant  gives  time 
and  labor  in  consideration  of  wages  or  salary. 

37.  Another    common   type    of    consideration   supporting   a 
binding  contract  is  where  there  are  mutual  promises,  —  "a  promise 
for   a   promise."     The   engineering   contracts   in  which  we   are 
especially  interested  are  generally  in  this  class,  and  in  them  the 
contractor  promises  to  faithfully  perform,  etc.,  in  return  for  the 
owner's  promise  to  pay  the  stipulated  sum  when  due.     Another 
instance  would  be  where  A  promises  to  buy  certain  goods  at  a 
fixed  price  when  made,  and  B  promises  to  manufacture  'the  goods 
and  to  sell  them  to  A  at  that  price. 

Where  there  is  an  act  for  a  promise,  the  promise  being  on  one 
side  only,  the  contract  is  said  to  be  unilateral;  when  there  are 
mutual  promises,  it  is  called  bilateral.  The  point  of  the  whole 
discussion  is  that  a  consideration  is  a  prune  necessity  in  the 
making  of  a  good  contract,  since  an  agreement  to  do  or  to  pay 
something  on  one  side  without  compensation  on  the  other  is  void 
at  law.  To  use  a  historical  phrase,  if  the  promise  made  on  one 
side  meets  no  mutual  and  corresponding  support  from  the  other, 
the  first  is  nudum  pactum,  a  "  mere  naked  promise,"  insufficient 
to  support  a  good  contract. 

38.  Similarly,  it  appears  that  a  gratuitous  promise  is  not  bind- 
ing at  law.     This  means  that  where  a  person  promises  to  do  a 
thing  that  he  is  already  legally  bound  to  do,  such  an  additional 
promise  can  not  serve  as  the  consideration  of  an  agreement  upon 
which  to  base  claims  of  additional  compensation. 

In  a  famous  case,  A's  property  being  on  fire  he  promised  the  Chief  of  the 
Fire  Dep't  $1000  if  he  would  do  his  utmost  to  extinguish  it.  The  fireman  did 
this  and  sued  A  for  $1000.  Should  he  recover? 

No.  Since  the  plaintiff  was  already  legally  bound  to  do  his  utmost  to 
put  out  the  fire  his  act  could  not  be  sufficient  consideration  for  A's  promise, 
which  though  made  under  the  stress  of  great  excitement  was  yet,  in  the  eye 
of  the  law,  merely  gratuitous.  (55  Wis.  496.)  Likewise  a  promise  to  pay  a 
debt  already  due  was  held  not  to  be  a  good  consideration. 

39 


§39  CONTRACTS 

39.  In  the  above  class,  and  of  particular  interest  to  engineers 
are  cases  where  the  contractor  throws  up  a  job  but  promises  to  go 
on  and  complete  it  if  the  owner  will  agree  to  pay  him  a  certain 
further  amount.     The  owner  may  acquiesce  in  this,  but  as  the 
contractor  is  already  legally  bound  by  the  terms  of  the  original 
agreement  to  fully  complete  the  work,  his  promise  to   do  that 
which  he  has  already  agreed  to  do  cannot  make  a  good  con- 
sideration for  the  owner's  promise  to  give  him  additional  pay. 
As  a  result,  the  owner's  promise  is,  in  law,  purely  gratuitous  and 
the  contractor  can  collect  nothing  under  it. 

40.  But  if  there  is  a  real  hardship  involved  in  carrying  out  the  contract 
and  the  parties  in  good  faith  wish  to  get  together,  two  ways  out  of  the  difficulty 
are  open.     First,  they  may  by  mutual  agreement  cancel,  annul,  abrogate 
and  completely  do  away  with  the  existence  of  the  old  contract,  in  which  case 
both  parties,  of  course,  waive  all  their  rights  under  it.     Then  they  make  an 
entirely  new  contract  upon  better  terms  for  the  completion  of  the  work,  and 
the  owner's  promise  would  then  be  a  good  consideration  for  the  contractor's 
promise  to  perform.     The  point  is  that  the  contractor  shall  not  be  allowed 
to  bull-doze  the  owner  as  often  as  he  sees  fit  by  threatening  to  quit,  extorting 
each  time  a  new  and  additional  promise  for  more  money  from  the  owner,  on 
his  own  side  only  promising  that  which  he  is  already  bound  to  do,  perform 
the  original  contract.     Second,  the  original  agreement  is  still  kept  in  force, 
i.e.,  the  contractor  does  not  commit  a  breach  of  it  nor  does  the  owner  in  any 
way  waive  his  rights  under  it.     Then,  for  the  performance  of  some  trifling 
and  nominal  matter  outside  the  original  contract,  the  owner  may  agree  to  pay 
the  contractor  the  amount  which  both  feel  to  be  justly  due  him  on  the  first 
contract.     It  may  be  stipulated  that  this  small  contract  which  may  be  abso- 
lutely trivial,  shall  not  be  performed  until  a  certain  date,  or  not  until  the  main 
contract  is  wholly  completed,  or  some  other  provision  may  be  inserted  to 
prevent  the  owner's  being  tricked  out  of  the  second  sum.     Thus  justice  could 
be  done  and  at  the  same  time  the  necessary  principle  of  law  upheld  that  a 
promise  which  forms  the  consideration  of  one  contract  cannot  at  the  same 
time  form  the  consideration  for  another. 

41.  When  disputes  arise  as  to  facts,  if  the  parties  are  acting 
in   good   faith,    mutual   demands  and  mutual  compromises  may 
also  serve  as  good  consideration,  since  it  is  a  settled  policy  of 
the  law  to  encourage  people  to  get  together  and  patch  up  their 
disputes  without  bringing  them  into  court.*    Unilateral  or  bilat- 
eral forbearance  likewise  serves  as  good  consideration. 

Where  A  agrees  for  a  sum  of  money  to  discontinue  a  suit  against  B  upon 
a  claim  which  he  knows  to  be  bad  and  unenforceable,  the  contract  is  invalid 
for  want  of  consideration.  This  is  not  because  having  no  legal  right  to  sue 

*  This  case  is  not  at  all  similar  to  that  of  blanket  clauses  in  a  contract 
making  the  engineer  sole  arbitrator.  Here  two  people  get  together  and  make 
an  agreement  in  the  present  to  settle  their  difficulties  "  out  of  Court,"  —  and 
this  is  a  desirable  result.  The  trouble  with  the  arbitration  case  is  that  the 
parties  agree  in  advance  that  they  will  surrender  a  certain  right,  viz. :  that  of 
being  heard  in  Court. 

40 


CONTRACT   ESSENTIALS  §  43 

B  in  the  first  place  he  has  given  up  none,  nor  is  it  because  there  was  a  benefit 
to  B  (the  promisee)  in  having  even  a  groundless  suit  against  him  discontinued; 
but  because,  as  said  earlier,  it  is  not  a  question  of  benefit  or  detriment  to  the 
promisor  A,  but  of  legal  detriment  to  the  promisee  B,  which  supplies  the  test. 
The  case  further  illustrates  the  necessity  for  careful  reasoning  in  the  appli- 
cation of  legal  rules  to  cases  apparently  simple. 

42.  Kinds  of  Consideration.  —  Considerations  are  classified  as 
"  good "   and  as   "  valuable."     A  good   consideration  is  such  as 
the  ties  of  blood-relationship,  or  is  one  founded  on  natural  love 
and  affection,  and  it  is  not  always  effectual.     Of  this  we  have 
little  to  say,  since  it  is  "  valuable  "  considerations  with  which 
the  engineer  mostly  deals.     It  is  well  stated  in  a  New  Jersey  case 
that  a  valuable  consideration  is  "  some  forbearance,  detriment, 
loss  or  responsibility  given,  suffered,  or  undertaken  by  the  other 
party  (the  promisee)  in  return  for  a  promise  or  an  act."     (34  N.  J. 
Law  54.)     Thus  our  whole  discussion  will  be  seen  to  have  dealt 
with  "  valuable  "  consideration  alone. 

43.  Adequate  Consideration.  — •  When  the  validity  or  binding 
power  of  a  contract  is  under  discussion  there  is  a  natural  tendency 
for  the  layman  to  consider  whether  or  not  a  fair  price  or  compen- 
sation has  been  stipulated  for  the  work  to  be  done,  or  other  benefit 
to  be  received.     The  rule  of  law  is  fixed  that  if  there  is  in  fact  a 
real  consideration,  the  question  of  adequacy  will  not  be  inquired 
into  by  the  court.     That  is  to  say,  if  a  man  wants  a  thing  he  is 
the  judge  of  what  it  is  worth  to  him  and  it  is  not  the  function  of 
the  court  to  make  bargains  for  individuals,  but  merely  to  see  that 
they  get  the  consideration  bargained  for. 

Of  course  this  principle  is  not  to  be  extended  to  absurdity, 
particularly  if  the  consideration  on  each  side  is  of  the  same  sort 
or  character,  and  are  not  then  commensurate.  Suppose  a  con- 
tract where  a  man  agreed  to  pay  golden  eagles  for  ll-greenbacks. 
The  court  would  be  as  likely  to  suggest  a  guardianship,  or  a 
lunacy  commission,  as  to  enforce  such  a  contract.  But  on  a  con- 
tract to  pay  a  considerable  sum  for  personal  services  which  was 
plainly  far  in  excess  of  their  true  value,  the  contract  was  held 
valid,  the  court  saying  that  the  employer  had  a  right  to  pay  as 
much  more  than  the  services  were  worth  as  he  pleased.  (64  N.  Y. 
596.)  It  must  not,  however,  be  understood  that  if  the  inadequacy 
of  consideration  is  gross,  and  the  transaction  bears  palpable 
evidence  of  fraud,  the  court  will  assist  in  carrying  it  out,  for  then 
it  will  refuse  -aid  in  its  enforcement. 

41 


§  43  A  CONTRACTS 

43  A.  Inadequate  Consideration. —  An  unscrupulous  attorney  buying 
land  took  advantage  of  an  old  man,  formerly  his  client.  The  old  man  was 
then  eighty-eight  years  of  age,  though  competent  to  execute  a  deed,  and 
had  for  many  years  relied  implicitly  upon  the  advice  of  the  attorney,  and 
had  perfect  confidence  in  him.  Equity  set  aside  the  deed  upon  finding  that 
the  consideration  was  grossly  inadequate,  even  though  the  relation  of  at- 
torney and  client  did  not  exist  at  the  time  of  making  the  deed.  (See  also 
§59.) 

44.  IMPOSSIBLE    CONSIDERATIONS.  —  In    a    contract 
otherwise  good  if  the  consideration  is  a  promise  physically  impos- 
sible of  performance,  and  both  parties  know  it,  the  contract  is  bad. 
It  would  appear  that  the  parties  must  either  be  insane  or  jesting. 
When  the  impossibility  is  known  to  the  promisor  only,  he  must 
lose,  since  the  reliance  placed  upon  his  promise  by  the  promisee 
is  a  sufficient  detriment  to  sustain  an  action  for  damages.     If  the 
impossibility  is  known  to  the  promisee  but  not  to  the  one  promising 
it  stands  to  reason  that  the  contract  will  be  void.     Otherwise  great 
hardships  and  impositions  would  result  to  the  innocent  promisor. 

45.  Closely  cognate  with  the  subject  of  Impossible  Considera- 
tions, if  indeed  it  is  not  substantially  the  same  thing  under  another, 
name,  is  IMPOSSIBLE  PERFORMANCE  of  contracts.    This  is  a  topic 
of  special  interest  to  the  engineering  contractor  since  unforeseen 
conditions  of  the  soil,  as  striking  ledge  in  excavation  where  gravel 
or  sand  was  expected,  meeting  unmanageable  quicksand,  or  sub- 
terranean springs  and  the  occurrence  of  tempests,  floods,  earth- 
quakes, or  other  calamities  of  nature,  may  suddenly  put  such  an 
aspect  on  the  contract  that  financial  ruin  stares  the  contractor 
in  the  face  if  he  must  indeed  carry  out  the  letter  of  the  agreement 
or  even  perhaps  seriously  attempt  to  do  so. 

45  A.  Impossibility;  Act  of  God.  —  A  contractor  undertook 
to  deliver  to  the  United  States  at  Kansas  City,  Mo.,  1500  tons 
of  "  Kansas  upland  prairie  hay  "  during  the  months  of  August 
and  September,  1913,  for  shipment  to  the  Philippine  Islands. 
There  was  a  shortage  of  the  hay  crop  due  to  a  drought  in  the 
vicinity  where  it  was  understood  that  the  hay  would  be  procured. 
The  contractors  were  unable  to  make  deliveries  in  accordance 
with  the  requirements  of  their  contract.  Could  the  contract 
legally  be  canceled? 

Held,  that  if,  by  reason  of  a  drought  in  that  vicinity,  the  contract  had 
become  impossible  of  performance  as  distinguished  from  simply  more  difficult 
to  perform,  the  contractors  were  legally  released.  In  calling  for  "  Kansas 
upland  prairie  hay  "  the  contract  might  be  construed  as  conditioned  on  the 
existence  of  a  crop  of  such  hay;  and  that  if,  by  reason  of  drought,  there  was 

42 


CONTRACT   ESSENTIALS  §46 A 

no  such  hay  procurable,  the  contract  could  not  be  performed,  and  the  con- 
tractors would  be  legally  relieved  on  the  ground  of  impossibility  of  perform- 
ance. 

Does  impossibility  of  performance  relieve  the  contractor  from 
liability  in  damages  for  non-performance?  The  case  where  the 
matter  was  known  to  be  impossible  by  one  or  both  parties  at  the 
time  of  making  the  contract  has  already  been  discussed.  Our 
interest  is  especially  in  those  cases  where  the  impossibility  arises 
subsequent  to  the  making  of  the  contract,  and  here  the  result  is 
held  to  depend  upon  the  nature  of  the  undertaking  and  upon  the 
exact  terms  of  the  bargain.  The  rule  is  severe  but  just,  for  if  a 
person  promises  absolutely  and  without  qualification  that  a 
certain  thing  shall  be  done  within  a  given  time,  it  being  at  the 
time  neither  impossible  nor  unlawful,  then  he  is  bound  absolutely 
to  carry  it  out.  For  against  all  ordinary  contingencies  he  might 
have  made  contract  provisions  to  relieve  himself  from  respon- 
sibility in  the  happening  of  the  possible  event.  In  failing  to  do 
so  he  did  not  exercise  ordinary  prudence  and  must,  perforce,  take 
the  consequences.  (53  111.  102.)  In  such  cases,  performance  is 
not  excused  by  inevitable  accident  nor  other  contingency  not 
foreseen  nor  under  the  control  of  the  party  (165  N.  Y.  247.) 

But  this  rather  harsh  rule  is  only  applicable  where  the  contract 
imposes  a  positive  and  absolute  obligation  and  is  not  subject  to 
any  qualification  or  condition,  express  or  implied.  It  is  just  here, 
probably,  that  the  difficulties  will  arise,  —  what  is  the  fair  implica- 
tion from  the  language  actually  used?  Pursuing  this  line  of 
thought  we  come  at  once  upon  the  topics  of  "  Express  "  and 
"  Implied  "  contracts  and  the  rules  for  the  "construction"  or 
interpretation  of  contracts  (discussed  at  length  in  §§  68-9-70 
which  should  be  carefully  perused  in  this  connection). 

45B.  Delay  in  Performance ;  Act  of  God.  —  An  Army  contract  for 
fresh  beef  gave  the  right  in  case  of  failure  to  make  deliveries  —  "to  supply 
by  purchase  in  open  market  or  otherwise  any  deficiency.  ..."  The  supply 
officer  purchased  a  quantity  of  fresh  beef,  and  the  difference  between  the 
purchase  price  and  the  contract  price  deducted  from  the  contractor's  balance. 
The  latter  claimed  the  deduction  was  improper  because  failure  to  deliver 
was  the  result  of  delayed  trains  due  to  exceptional  flood  conditions. 

Held,  that  as  the  contract  contained  no  provision  relieving  from  failure 
in  delivery  caused  by  delays  in  transit,  there  was  no  authority  for  granting 
the  relief  requested. 

46  A  typical  case  might  arise  thus:  A  contractor  agrees  to  put  in  the 
foundations  of  a  structure  of  a  general  type  and  to  extend  approximately 
to  a  specified  depth.  Upon  making  the  excavation  he  encounters  soil  such 
that  to  insure  the  safety  of  the  proposed  structure  he  must  modify  and  enlarge 
the  foundation  plan  and  practically  double  its  cost.  Must  he  do  this  and 

43 


§  46  A  CONTRACTS 

still  receive  only  the  price  originally  agreed  upon?  The  contract,  as  at  first 
contemplated,  has  become  impossible  of  performance.  What  are  the  rights 
of  the  parties  now?  The  answer  to  the  problem  hinges  upon  the  exact  lan- 
guage used  in  the  contract.  Was  there  any  provision  for  "  extras  "  ?  Did 
the  builder  agree  in  such  a  way  as  to  positively  assume  all  risks  as  to  the  sub- 
soil? If  the  document  does  show  an  unqualified  assumption  of  this  risk,  then 
he  is  bound  to  fully  perform  even  to  the  extent  of  putting  in  the  extra  founda- 
tions. And  if  he  fails  to  go  on  with  the  contract,  under  this  supposition,  the 
owner  has  a  right  to  sue  for  non-performance.  But  suppose,  on  the  other 
hand,  that  to  induce  the  making  of  the  contract  the  owner  used  language 
plainly  implying  that  he  warranted  the  condition  and  quality  of  the  subsoil. 
Then  as  this  warranty  is  now  broken  the  contractor  can  withdraw  on  the 
ground  of  misrepresentation,  and  the  owner  can  get  no  damages  because  of 
the  builder's  failing  to  go  on  with  the  work.  The  owner  must  pay  the  fair 
value  or  cost  of  the  work  already  done.  That  the  whole  situation  is  a  rather 
delicate  one,  and  that  the  question  of  what  is  really  implied  in  addition  to 
what  is  expressed  is  frequently  subtle  though  extremely  important,  will 
be  indicated  by  these  words  from  a  Federal  Court:  "  Where  the  event  which 
prevents  performance  is  of  such  a  character  that  it  cannot  reasonably  be  sup- 
posed to  have  been  in  the  contemplation  of  the  parties,  they  will  not  be  bound 
by  general  words,  which ,  though  large  enough  to  include  it,  were  not  [in  fact] 
used  with  reference  to  the  possibility  of  the  particular  contingency  which  after- 
wards happens."  (102  U.S.  64.) 

46  A.  Performance  Discussed.  (See  also  §§  94-99  inclusive 
for  definitions.)  A  drilling  contractor,  X,  agrees  to  drill  a  well 
3000  ft.  deep  for  B,  unless  oil  in  commercial  quantities  is  reached 
at  a  less  depth.  At  2500  ft.  unexpected  and  extraordinary 
difficulties  are  met,  and  X  contends  that  further  progress  is  im- 
possible, quitting  the  job.  What  are  the  rights  of  the  parties? 

(a)  Can  X  sue  under  "  substantial  performance,"  and  thus 
receive  pay  for  the  work  already  done? 

(6)  Does  X  breach  his  contract  by  not  going  to  the  3000  ft. 
depth  specified? 

(c)  Can  "  specific  performance  "  be  obtained? 

(a)  If  X  can  prove  that  performance  is  impossible  by  any  methods  or- 
dinarily used  he  may  recover  for  the  work  done  as  a  substantial  performance, 
since  he  has  done  all  in  his  power,  or  as  well  as  any  other  driller  could  do,  and 
should  be  paid  therefor,  as  on  "  quantum  meruit." 

(b)  If,  however,  the  difficulty  arises  through  some  fault  of  the  contractor, 
such  as  losing  the  tools  in  the  hole,  he  can  not  recover  for  the  work  done, 
but  must  make  a  new  hole  for  the  full   3000  ft.  specified  before  receiving 
compensation. 

There  is  no  breach  on  the  part  of  X  if  he  can  substantiate  his  claim  of 
impossible  performance,  because  one  can  not  be  held  to  do  that  which  is 
physically  impossible. 

(c)  Not  a  case  of  specific  performance,  since  it  was  apparently  only  an 
ordinary  undertaking  that  any  one  could  have  done. 

Suppose  that  X  starts  to  drill  and  passes  a  strata  of  water 
at  300  ft.  This  gives  him  such  trouble  that  at  800  ft.  he  is  forced 
to  abandon  the  well  as  an  oil  project,  but  he  decides  to  pull  the 

44 


CONTRACT   ESSENTIALS  §  48 

casing,  and  use  the  well  as  a  water- well.     Can  he  recover  for  the 
work  done? 

If  B  uses  the  well  for  water  it  is  therefore  a  benefit  to  him,  for  which 
he  should  pay  a  proper  amount.  But  if  B  would  not,  nor  did  not  use  the  well 
for  a  water  supply,  he  could  still  require  a  new  well  to  the  full  3000  ft. 

Suppose  the  contract  did  not  specify  stopping  if  oil  was  struck  at  less 
than  3000  ft.,  and  Lin  fact  oil  was  reached  at  1000  ft.  Could  X  sue  B  for 
substantial  performance,  getting  pay  for  the  full  depth?  No,  since  the 
purpose  was  to  get  oil  at  3000  ft.  or  less,  reaching  the  oil  satisfactorily  was  a 
full  performance,  whatever  the  depth. 

All  of  the  foregoing  discussion,  however,  chiefly  brings  out 
the  point  that  the  language  of  the  original  contract  should  be 
as  specific  as  possible,  in  view  of  the  contingencies  probable  to 
arise,  when  none  of  the  questions  discussed  could  come  up. 

47.  It  thus  appears  that  the  "  rules  of  construction  "  (or  con- 
struing contracts)  have  an  important  bearing  here.     Since  the 
parties  have  in  writing  expressed  themselves  thus  and  so,  will 
the  rules  of  evidence  permit  a  demonstration  of  what  they  meant 
(or  really  had  in  mind)  by  other  and  extraneous  means,  as  for 
instance,  by  the  oral  testimony  of  interested  persons?  .  .  .     The 
moral  of  the  whole  matter  is  this:   In  the  preparation  of  an  engi- 
neering contract,  strive  to  foresee  every  reasonably  possible  con- 
tingency which  may  arise  to  render  its  performance  impossible. 
Then  in  the  most  precise,   comprehensive,   and  lucid  language 
possible,  outline  what  are  intended  to  be  the  rights  and  obligations 
of  the  parties  in  the  event  of  such  contingencies  arising.     Trivial 
details  need  not  be  striven  for  since  if  there  is  a  fairly  bold  outline 
of  what  is  intended,  the  court  will,  as  a  matter  of  judicial  inter- 
pretation, supply  a  reasonable  and  just  implication  of  those  con- 
sequential details  which  follow  the  spirit  of  this  main  outline. 

47  A.  Explanation  of  Intention.  —  Where  mortgaged  property  is  described 
as  "  one  standard  oil-drill  and  rig  and  all  tools  and  equipment,  consisting 
of  boiler,  engines,  bits,  stems,  etc.,  now  located  at  .  .  .",  parole  proof  of  the 
extent  and  meaning  of  the  words  employed  and  the  sense  in  which  the  parties 
used  them  is  admissible,  and  to  show  that  certain  oil  well-casing  used  by 
the  mortgagor  in  connection  with  the  oil  drill  and  rig  was  not  included  in 
the  general  description. 

Also,  where  in  a  verbal  contract,  written  instruments  are  thereafter 
executed  in  its  performance,  oral  evidence  as  to  the  terms  of  the  original 
agreement  is  admissible. 

48.  Proof  of  Consideration.  —  Two  questions  are  presented: 

(a)  Was  there  any  consideration  at  all?  The  natural  place 
to  look  for  proof  is  in  the  terms  of  the  instrument.  Yet  in  a  simple, 

45 


§  49  CONTRACTS 

or  "  parol  "  contract  (one  not  under  seal)  most  courts  hold  that 
the  consideration  need  not  be  stated  if  there  really  is  one. 

(b)  Is  the  statement  found  in  the  contract  proof  of  what 
the  consideration  is?  If  the  consideration  is  a  promise  to  do 
something,  then  the  terms  as  stated  will  bind  the  parties.  They 
cannot  be  controverted.  (454  Mo.  App.  636.)  But  where  the 
consideration  was  stated  in  the  contract  to  be  a  certain  sum  of 
money,  and  this  had  been  paid  over,  parol  evidence  was  allowed 
to  show  the  true  agreement,  as  for  instance,  that  the  true  amount 
was  greater  than  the  sum  stated. 

49.  Seal.  —  Anciently   the  matter   of   a   seal   was   of  great 
importance  in  the  making  of  contracts.     Its  significance  is  now 
greatly  lessened,   and  in  some  States  it  has  fallen  into  entire 
disuse.     Contracts  under  seal  $re  called  "  specialties  "  or  "  bonds," 
and  this  was  the  most  solemn  form  of  contract  known  to  the  Eng- 
lish common  law.     Its  interest  in  the  present  connection  is  that 
at  common  law  the  presence  of  a  seal  did  away  with  the  necessity 
for  a  consideration,  thus  forming  an  important  exception  to  the 
general  rule.     But  in  many  States  the  distinction  between  sealed 
and  unsealed  instruments  has  been  abolished.     This  is  too  tech- 
nical a  matter  to  be  entered  upon  here,  however,  since  in  practice 
the  local  statutes  should  be  ascertained  and  must  then  be  followed. 

50.  FAILURE  OF  CONSIDERATION.  —  This  results  from 
the  worthlessness  or  insufficiency  of  consideration,  originally  ap- 
parently good. 

Examples,  property  purchased  which  proves  worthless,  or  has  passed 
out  of,  or  has  never  come  into,  existence  when  the  contract  is  executed.  In 
another  case  a  promissory  note  was  given  in  payment  for  a  patent  right 
which  proved  to  be  invalid.  The  maker  of  the  note  was  relieved  from  pay- 
ment. (148  Mass.  352.)  Of  the  same  sort  was  a  case  where  a  ship-load  of 
goods  at  sea  was  sold  after  the  vessel  was  lost,  and  another  where  a  set  of 
farm-buildings  was  sold  after  they  had  in  fact  burned  down. 

There  are  many  other  phases  of  this  matter  of  consideration 
which  cannot  be  entered  upon  here.  Text-writers  in  the  law  have 
written  whole  books  upon  it.  Enough  has  perhaps  been  said  to 
allow  the  engineering  student  to  grasp  certain  of  the  main  features. 

51.  (4)  AGREEMENT    OR    MUTUAL    ASSENT.  —  This 
element  means  the  concurring  of  two  minds  in  the  same  opinion, 
purpose  or  understanding    of   a  course  to  be  pursued.     We  are 
here  dealing  with   the  purely  mental  phase  of    contract-making. 
The   student   need  apprehend    no  real   difficulty,   therefore,   in 

46 


CONTRACT   ESSENTIALS  §  53 

grasping  the  full  significance  of  the  ancient  rule,  "  In  contracts 
there  must  be  a  real  meeting  of  the  minds,"  which  phrase  aptly 
expresses  the  fundamental  principle  of  contract  law. 

52.  In  general,  there  must  be  a  mutual  willingness  and  assent 
to  enter  upon  and  be  bound  by  the  bargain  as  understood,  for  it 
is  fundamental  that  there  is  no  contract  unless  the  parties  assent 
to  the  same  thing  in  the  same  sense.    This  does  not  mean  that  one 
must  read  the  secret  thoughts  or  intentions  of  the  other,  since  the 
rule  of  law  is  satisfied  if  there  is  a  plain  request  on  one  side  and 
as  plain  an  assent  on  the  other.     This  brings  us  to  an  extensive 
subdivision  of  our  topic,  viz.:    Offer  and  Acceptance,  more  fully 
treated  elsewhere.     The  present  purpose  is  to  look  at  those  cases 
where  there  is  said  to  be  "  Unreality  of  Consent,"  its  importance 
arising  because  of  the  reasonable  and  just  rule  that  "  The  consent 
(or  assent)  of  the  contracting  parties  must  be  real  and  genuine." 
The  cases,  or  causes  of  unreality  of  consent,  are  usually  classified 
as  arising  from  Mistake,  Misrepresentation,  Fraud,  and  Duress, 
each  of  which  will  be  discussed  briefly. 

53.  MISTAKE.  —  Anson,  a  famous  writer  on  Contracts,  gives 
this  as  the  technical  meaning  of  the  word:  —  "  Where  the  parties 
have  not  meant  the  same  thing;    or  though  meaning  the  same 
thing,  have  formed  untrue  conclusions  as  to  the  subject  matter, 
it  is  '  mistake.'  '      A  mistake  of  expression  may  perhaps  be  cor- 
rected or  explained  by  permission  of  the  court,  but  this  must 
be  clearly  distinguished  from  mistake  of  intention,  or  mistake  in 
understanding,  and  from  mistakes  of  omission  where  one  party 
fails  to  get  into  the  contract  all  the  terms  agreed  upon.     In  such 
a  case  he  may  fail  to  bind  the  other  party  to  fulfillment. 

Anson  classifies  possible  instances  of  mistake  as  follows :  — 
(a)  Mistakes  as  to  the  Nature  of  the  Transaction.     This,  he 
says,  is  of  very  rare  occurrence,  since  men  generally  know  what 
they  are  contracting  about,  and  it  will  generally  arise  only  through 
some  misrepresentation  or  deceit  by  a  third  person. 

In  a  case  where  a  deed  was  signed  by  an  illiterate  person  who  was  told 
by  an  outsider  that  it  was  a  release  for  arrears  in  rent,  it  was  held  to  be  a  mis- 
take due  to  misrepresentation  and  the  deed  was  void.  (56  N.  Y.  137.) 

This  distinguishes  the  case  from  fraud  where  the  deceit  must  be  per- 
petrated by  one  of  the  principals  to  induce  the  other  to  enter  the  contract. 

If  a  person  in  full  possession  of  his  faculties  and  able  to  read, 
signs  a  paper  or  note  under  the  belief  that  it  is  a  contract  of  a 

47 


§  51  CONTRACTS 

different  character,  and  not  having  read  it  he  relies  upon  the 
representations  of  another  as  to  its  contents,  it  is  generally  held 
that  he  will  still  be  bound  by  it  if  the  instrument  later  comes  into 
the  hands  of  one  who  purchases  it  innocently  and  without  notice 
of  the  signer's  mistake. 

54.  (6)  Mistake  as  to  the  Person.     Since  one  person  contracts 
with  another  having  in  view  the  character,  reputation,  and  financial 
responsibility  of  the  other  party,  it  is  plain  that  there  is  a  mis- 
understanding, and  hence  no  real  meeting  of  the  minds,  if  by 
mistake,  another  person  is  substituted  for  the  one  the  first  party 
intended  and  supposed  he  was  making  the  contract  with.     For 
a  case  to  illustrate  this,  see  §  273. 

55.  (c)  Mistake  as  to  Subject  Matter.     Under  this  topic  there 
are  numerous  shades  of  significance  indicated  by  the  varying 
circumstances,  and  to  frame  an  intelligible  and  brief  rule  is  not 
easy.     It  is  said  that  it  must  clearly  appear  that  the  party,  with- 
out any  fault  of  his  own,  made  an  agreement  contrary  to  his  real 
intention.     This  must  be  distinguished  from  a  case  where  a  man 
forms  an  erroneous  judgment,  or  errs  as  to  the  scope  of  his  own 
legal  powers  or  authority,  since  then  he  will  probably  find  the 
contract  only  too  binding.     He  goes  into  the  contract  knowing 
what  it  is  about  and  though  a  course  of  wrong  reasoning  may  have 
led  him  to  take  the  step,  still  he  will  be  bound.     But  if  without 
his  own  fault  or  negligence  he  enters  into  a  contract  contrary  to  his 
real  intention,  and  because  of  a  real  misunderstanding  of  the 
subject  matter,  he  will  not  be  bound.     In  this  class  are  cases  where 
the  parties  have  agreed  upon  the  subject  matter,  but  unknown 
to  them  it  has  ceased  to  exist;  or  where  each  has  different  articles 
of  the  same  sort  in  mind;   or  where  one  is  aware  that  an  article 
does  not  possess  certain  important  qualities  and  does  not  inform 
the  other,  who,  believing  that  the  article  does  possess  these  qualities, 
is  led  to  make  the  bargain.     Such  might  be  a  case  where  an 
engineer  states  plainly  that  he  must  have  quick-setting  cement 
and  is  knowingly  furnished  by  the  dealer  with  what  proves  to 
be  a  slow-setting  brand.     In  such  cases  the  contract  is  not  binding. 

56.  MISREPRESENTATION.  —  Anson  says :  "  If  one  of  the 
parties  has  been  led  to  form  untrue  conclusions  respecting  the  sub- 
ject matter  by  a  statement  innocently  made,  or  facts  innocently 
withheld  by  the  other,  this  is  misrepresentation."     This  definition 
should  be  kept  in  mind  when  considering  fraud,  since  on  the  face 

48 


CONTRACT   ESSENTIALS  §  57 

they  "  may  "  appear  to  be  the  same.  The  significance  of  the  differ- 
entiation is  that  misrepresentation  invalidates  the  contract  and 
no  rights  arise  under  it,*  while  fraud  not  only  voids  the  contract 
but  also  gives  an  action  (i.e.,  a  right  to  sue)  for  damages.  Anson 
mentions  that  in  contracts  for  marine,  fire,  and  life  insurance,  and 
in  the  sale  of  land,  this  sort  of  misrepresentation,  i.e.,  the  innocent 
non-disclosure  of  material  facts,  is  fatal  to  the  formation  of  the 
contract.  Without  stopping  to  pursue  this  matter  further,  enough 
has  perhaps  been  said  to  direct  the  engineer's  attention  to  a  sub- 
ject which  may  easily  become  of  considerable  importance  to  him, 
56  A.  Representations;  Contract  Drawings.  —  A  contract 
for  a  sewer  contained  the  usual  clause  about  quantities.  The 
contract  drawings  showed  profiles  with  a  line  marked  "  Ap- 
proximate Rock  Line."  Rock  of  a  maximum  depth  of  14  to  16 
feet  was  encountered  where  none  was  shown  on  the  drawing. 
Moreover  it  occurred  in  a  part  of  town  where  the  work  was  most 
difficult  owing  to  adjacent  buildings. 

The  contractors  sued  for  the  extra  cost  of  this  work  and  won.  The 
court  said,  "  The  contractor  should  be  held  to  strict  compliance  with  the 
terms  of  the  contract  as  shown  by  the  drawings,  plans,  and  specifications. 
He  should  take  every  reasonable  precaution  to  advise  himself  upon  his  under- 
taking. Likewise  the  city  should  inform  itself,  through  its  engineer  as  -an 
expert,  as  to  the  true  conditions  the  contractor  will  meet.  It  is  quite  as 
important  to  hold  the  municipality  as  strictly  to  its  accountability  as  the 
contractor.  The  city  should  not  receive  the  benefit  of  work  done  and  ma- 
terials furnished  through  narrow  technical  construction  of  a  contract,  leading 
wholly  to  the  advantage  of  the  party  having  the  greatest  opportunity  to 
know  the  actual  conditions  and  requirements.  The  city  should  be  bound 
by  the  drawings  it  presents  to  contractors  for  their  information.  It  cannot 
be  claimed  that  the  contractors  should  actually  make  extensive  excavations 
before  beginning  in  order  to  find  out  what  they  may  be  called  upon  to  do." 

57.  FRAUD.  —  Every  one  has  a  general  notion  of  what  con- 
stitutes fraud,  but  the  expounders  of  law  have,  in  the  interests  of 
justice,  found  it  necessary  to  set  up  certain  rigid  and  technical 
standards  by  which  to  measure  situations.  If  the  technical 
elements  of  fraud  are  not  found,  then  in  law  no  fraud  exists,  even 
though  there  is  great  wrong  from  a  moral  or  ethical  standpoint. 
The  spirit  of  the  law  seems  to  be  that  it  is  better  to  have  a  dozen 
guilty  go  unpunished  rather  than  that  one  innocent  should  be 
injured. 

*  The  essence  of  the  distinction  is  that  "  representation  "  is  regarded  as  an 
element  of  the  "  meeting  of  the  minds."  If  there  is  no  "  meeting  "  there  is 
no  contract.  In  fraud  the  "  meeting  "  is  sufficiently  consummated  but  the 
deceit  practiced  gives  important  rights  against  the  deceiver. 

49 


§  58  CONTRACTS 

The  essential  elements  which  go  to  make  up  fraud  are :  — 

(a)  False  representation  of  a  material  fact; 
(6)  Made  with  a  knowledge  of  its  falsity,  or  in  reckless  disre- 
gard as  to  whether  it  was  true  or  false; 

(c)  Made  with  the  intention  that  it  should  be  acted  upon  by 
the  plaintiff; 

(d)  And  being  believed  by  him,  the  plaintiff  was  induced  to  act 
by  it; 

(e)  And  he  thereby  suffered  damage. 

Though  easily  stated,  the  complete  identification  of  all  these 
five  elements  in  a  given  set  of  facts  is  often  difficult.  In  fraud, 
as  in  other  fields  of  legal  study,  cases  of  all  shades  of  significance 
will  be  found.  Each  of  the  foregoing  five  elements  may  be  split 
into  several  others  for  separate  study  and  discussion,  and  since 
whole  treatises  have  been  written  on  this  subject,  their  enumera- 
tion is  all  that  can  be  done  here.  In  this  connection  the  stu- 
dent should  read  carefully  the  sections  on  Illegality  and  Fraud, 
§326,  etc. 

58.  DURESS.  —  Perhaps  money  is  paid,  a  document  is  signed, 
or'  assent  given  to  a  proposition,  under  such  compulsion  and 
coercion  that  in  law  the  act  will  be  regarded  so  far  involuntary 
as  to  invalidate  the  bargain  agreed  upon.  The  consent  was 
"  unreal,"  —  there  was  no  "  meeting  of  the  minds."  This  is  what 
is  meant  by  duress.  To  constitute  duress  there  must  be  some 
actual  or  threatened  exercise  of  power  possessed  (or  believed 
by  the  constrained  party  to  be  possessed),  by  the  party  exacting 
or  receiving  the  payment,  over  the  person  or  property  of  the  one 
assenting,  from  which  the  latter  had  no  means  of  immediate 
relief  other  than  by  giving  the  consent  sought. 

At  common  law  two  kinds  of  duress  were  recognized,  (a)  of 
imprisonment,  (6)  of  threats;  (a)  referred  to  imprisonment  of 
the  party,  or  of  one  closely  related  to  him,  and  (6)  was  actual 
or  threatened  physical  violence  to  such  a  party. 

These  rules  of  the  common  law  are  having  then*  limits  extended  con- 
siderably in  the  United  States,  however,  at  the  present  time.  To  be  obliged 
to  sign  an  important  paper  at  the  point  of  a  pistol,  for  instance,  may  be  highly 
melodramatic  in  a  storybook,  but  is  not  likely  to  happen  to  the  engineer 
of  to-day.  It  is  entirely  conceivable,  though,  that  a  contractor  or  the  owner 
could  be  placed  in  such  circumstances  that  the  coercion  to  sign  or  enter  upon 
an  agreement  might  amount  to  duress. 

50 


CONTRACT   ESSENTIALS  §  59 

The  Supreme  Court  of  the  United  States  has  held  that  con- 
tracts procured  by  threats  of  battery  to  the  person,  or  of  destruc- 
tion of  goods  and  property,  or  trespass  to  lands,  would  constitute 
duress;  but  that  a  mere  threat  of  a  lawsuit  is  not  duress  where 
there  is  no  danger  of  injury,  or  destruction  of  property,  and  there 
is  an  opportunity  to  try  the  thing  out  legally,  but  the  party  yields 
merely  to  avoid  litigation.  (101  U.  S.  465.)  The  ultimate  fact 
to  be  determined  is  whether  the  party  really  had  a  choice  and  the 
freedom  of  exercising  his  will.  It  is  noteworthy  that  duress  has 
the  same  effect  as  fraud  *  upon  the  contract,  i.e.,  it  is  not  neces- 
sarily void,  but  voidable  at  the  option  of  the  party  constrained. 
The  injured  party  may  disaffirm  the  contract,  or  he  may  expressly 
or  impliedly  ratify  it. 

59.  Undue  Influence  is  a  subject  closely  akin  to  duress,  and 
merits  a  word  here.  The  very  title  suggests  why  it  vitiates  the 
"  meeting  of  the  minds."  Anson  says:  "  Circumstances  may 
render  one  of  the  parties  morally  incapable  of  resisting  the  will  of 
the  other,  so  that  his  consent  is  no  real  expression  of  intention. 
This  is  undue  influence."  This  principle  has  been  chiefly  de- 
veloped in  the  system  of  jurisprudence  called  "  equity,"  and 
is  a  way  in  which  courts  have  guarded  persons  against  those  who 
would  take  advantage  of  their  improvidence,  moral  weakness, 
or  of  their  ignorance  and  unprotected  situation.  When  from 
the  relative  positions  of  the  parties  the  presumption  of  undue 
influence  arises  the  contract  cannot  stand  unless  the  party  claim- 
ing the  benefit  of  it  can  show  that  it  is  fair,  just  and  reasonable. 
Cases  where  this  point  has  arisen  are  between  guardians  and  their 
wards,  attorneys  and  their  clients,  doctors  and  their  patients, 
etc.  The  test  is:  Was  the  influence,  whether  great  or  small, 
sufficient  to  destroy  freedom  of  the  will  so  that  the  act  in  question 
was  the  result  of  the  domination  of  the  mind  of  another?  If 
established,  the  party  unduly  influenced  has  the  right  to  rescind 
and  he  will  not  be  bound  by  a  subsequent  affirmation  unless  it. 
is  clear  that  the  influence  or  difficulty  under  which  he  labored  is 
entirely  removed. 

*  See  also  Misrepresentations,  §  56. 


51 


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52 


QUESTIONS 

Questions  for  Study  and  Review 

on 
Chapter  1  and  Chapter  II 

1.  Why  should  the  engineer  understand  the  law  of  contracts? 

2.  Discuss  the  importance  of  studying  the  elements  of  business 
law. 

3.  What  are  some  of  the  arguments  for  the  study  of  business 
rules  by  the  engineer? 

4.  Why  should  even  a  moderate  knowledge  of  business  law  be 
specially  valuable  to  the  engineer?     Compare  his  training  with  that 
of  the  "  business  "  man. 

5.  What  are  some  of  the  engineer's  ordinary  business  duties? 

6.  Educationally,  what  may  be  said  of  the  study  of  contract 
law  by  engineering  students? 

7.  What  are  some  of  the  fields  open  to  the  engineer  familiar  with 
business  practice? 

8.  Explain  why  the  contractor  should  have  a  technical  training. 

9.  What  is  the  scope  of  contract  law  to  be  outlined  in  this  book? 
What  is  its  relation  to  engineering  contracts? 

10.  Can  you  detect  the  wisdom  in  the  rule:  Ignorance  of  the  law 
excuses  no  one?    If  so,  explain. 

11.  Enumerate  the  valuable  features  in  a  just  and  equitable 
engineering  contract. 

12.  What  are  the  probable  reasons  for  many  impracticable  con- 
tracts? 

13.  Define  "  contract." 

14-    When  is  a  contract  enforceable? 

15.  What  are  the  four  essential  elements  of  a  binding  contract, 
and  how  have  they  become  established? 

16.  In  what  ways  will  a  knowledge  of  general  contract   law 
specially  assist  the  engineer? 

17.  Recite  upon  the  antiquity  of  contracts  and  their  relation  to 
civilization.     Name  contracts  for  six  different  purposes. 

18.  Epitomize  carefully  in  one  sentence  the  meaning  of  "  com- 
mon law" 

19.  What  is  the  form  in  which  legal  rules  are  usually  given? 
Why  is  this? 

20.  Recite  upon  the  usefulness  of  technical  terms. 

53 


CONTRACTS 

21.  Enumerate  those  who  are  not  "  competent  parties."     What 
peculiarity  can  you  discern  as  underlying  the  whole  class? 

22.  To  whom  do  the  terms  of  a  contract  apply? 

23.  State  the  common  grounds  of  illegality  in  contracts. 

24.  State  the  nature  of  the  legislative  restrictions  which  engineer- 
ing contracts  may  encounter. 

25.  What  may  be  the  effect  upon  the  contractor  if  these  are  not 
complied  with? 

26.  What  are  the  duties  of  the  parties  before  entering  upon  an 
important  engineering  contract?     Discuss  the  maxim,  "  Ignorance 
of  the  law  excuses  no  one"  in  this  connection. 

27.  What  is  Wait's  advice  to  engineers  and  contractors  as  to 
meeting  statutory  requirements?     Effect  of  non-compliance? 

28.  What  is  the  importance  of  "  Lien  and  Labor  "  laws  to  the 
contractor?     What  is  their  purpose? 

29.  Recite  as  far  as  possible  upon  contracts  in  restraint  of  trade. 
SO.    What  is  the  relation  of  Sunday  laws  to  our  subject? 

31.  Explain  the  object  and  origin  of  the  Statute  of  Frauds. 
Tell  why  it  was  necessary,  and  how  it  accomplishes  its  purpose. 

32.  What  are  the  "one-year"  and  "$50  "-rules?     Why  are 
engineering  contracts  in  writing? 

33.  Will  a  contract  coming  clearly  within  the  provisions  of  the 
Statute  be  unlawful  if  it  has  been  fully  performed,  i.e.  is  either  of 
the  parties  subject  to  a  law-suit  because  of  having  carried  it  out? 

34.  How  does  the  Statute  bear  upon  the  making  of  deeds  and 
leases? 

35.  What  is  meant  by  "  oral "  contract?    Is  such  a  contract 
binding  at  law? 

36.  Which  will  it  generally  be  harder  for  the  engineer  to  satis- 
factorily  meet  in   contract-writing,   statutory  restrictions   or  those 
imposed  by  the  common  law?     Explain  carefully. 

37.  Cite  four  examples  of  contracts  opposed  to  common  law. 

38.  What  parties  are  bound  by  the  terms  of  a  contract?     Explain 
the  position  of  the  surety  or  bondsman  in  engineering  contracts. 

39.  What    contract    obligations    does    the    bondsman    assume? 
With  whom? 

40.  Explain  how  "  tinkering "  with  the  construction  contraci 
releases  the  contract  of  surety.     How  may  this  be  avoided? 

41.  What  is  meant  by  contracts  "  opposed  to  public  policy  "? 

42.  By  whom  is  public  policy  declared?      Under  what  con* 
ditions  may  this  be  done? 

54 


QUESTIONS 

43.  Enumerate  five  examples  of  contracts  opposed  to  public 
policy. 

44-  Can  you  tell  why  arbitration  clauses  in  engineering  con- 
tracts are  likely  to  be  regarded  as  against  public  policy? 

45.  Which  is  the  larger  group,  that  of  contracts  whose  subject 
matter  is  lawful  or  unlawful?     Name  some  of  the  common  law 
branches  of  contracts. 

46.  Explain  carefully  what  is  meant  by  "  consideration." 

47.  What  is  the  essential  idea  underlying  a  good  consideration? 
Discuss  the  "  legal  detriment  "  rule. 

48.  Give  illustrations  of  "  gratuitous  promises."     What  is  their 
legal  effect? 

49.  Where  is  the  consideration  in  a  bilateral  contract?      Illus- 
trate. 

50.  Discuss  the  gratuitous-promise-rule  in  connection  with  the 
contractor  who  claims  he  is  losing  money,  and  refuses  to  continue  the 
work. 

51.  How  may  hardship  be  avoided  under   the    above  circum- 
stances? 

52.  Recite  upon  mutual  demands,  compromises,  or  forbearances 
as  consideration. 

53.  What  is  the  ultimate  test  for  the  detection  of  a  good  con- 
sideration? 

54.  What  kinds  of  consideration  are  there?     Illustrate.     Which 
have  we  discussed? 

55.  Explain  carefully  the  doctrine  of  "  adequate  consideration." 
Does  this  appear  reasonable  to  you?     Why? 

56.  When  will  inadequate  consideration  invalidate  the  contract? 

57.  Suppose  A  and  B  enter  into  a  contract  under  which  A  is  to 
fly  to  the  moon  and  return  within  one  year  from  date.     Can  B  recover 
damages  by  reason  of  A's  failure  to  do  so?     Why? 

58.  State  the  rule  as  to  impossible  considerations. 

59.  What  is  the  engineer's  special  interest  in  the  topic  "  Im- 
possib  le   Performance' '  ? 

60.  What  is  the  contractor's  position  when  the  impossibility 
arises  subsequently  to  his  entering  upon  performance? 

61.  Does  such  impossibility  relieve  the  contractor  from  liability 
for  non-performance?     Why,  or  why  not? 

62.  What  is  the  relation  of  tl construction  "  of  contracts  and 
"  implied  "  contracts  generally  to  this  discussion? 

55 


CONTRACTS 

63.  State  the  case  where  the  contractor  is  building  from  a  plan 
showing  foundations  which  are  found  to  be  inadequate. 

64-  How  will  the  prudent  contractor  have  secured  himself  in 
such  a  case? 

65.  Summarize  the  practical  value  of  the  foregoing  analysis  of 
impossible  performance  to  the  contract-writing  engineer. 

66.  Is  it  necessary  to  state  the  consideration  in  a  contract?     Sup- 
pose it  is  stated,  what  is  the  effect? 

67.  What    distinguishes    "  specialties "    and    "  bonds "    from 
other  contracts? 

68.  What  was  the  connection  between  seal  and  consideration 
at  common  law? 

69.  What  is  the  effect  of  "  failure  of  consideration"?     Give 
illustrations. 

70.  Define  the  element  "  Agreement." 

71.  What  do  you  understand  by  "  unreality  of  consent  "?    Its 
effect  is  what? 

72.  Name  the  classifications  under  "  Unreality  of  Consent." 

73.  What  kinds  of  mistakes  are  recognized  in  contract  law? 

74-  Give  a  case  illustrating  mistake  as  to  nature  of  the  trans- 
action. • 

75.  Suppose  a  person  negligently  signs  a  paper  but  later  claims 
mistake  as  to  subject  matter.     Is  he  bound?     What  practical  advice 
could  you  give  in  such  a  matter? 

76.  Under  mistake  as  to  subject  matter  how  can  the  injured  per- 
son secure  his  rights? 

77.  Suppose  the  mistake  is  one  of  judgment  upon   admitted 
facts.     Then  what? 

78.  State  clearly  the  differences  between  "  Misrepresentation  " 
and  "  Fraud." 

79.  Why  must  the  technical  elements  of  fraud  be  found  in  order 
to  establish  a  suit  for  damages? 

80.  Enumerate  the  essential  elements  of  fraud.     What  if  one  is 
missing? 

81.  What  is  meant  by  "  duress  "? 

82.  Cite  instances  which  have  been  held  to  be  duress.      What  is 
the  ultimate  test  for  its  detection? 

83.  What  effect  does  duress  have  upon  the  contract? 

84.  Tell  what  you  understand  by  "  undue  influence"     What  is 
tke  test  question? 

56 


CHAPTER  III 
DEVELOPMENT  OF  CONTRACT  PRINCIPLES 

This  chapter  will  present  some  developments  of  the  foregoing  contract  es- 
sentials which  may  be  said  to  clothe  the  skeleton  with  life.  The  bare 
principles  will  be  amplified  and  expanded  as  the  needs  of  society  and  of 
the  business  world  have  required.  It  will  now  be  in  order  to  deal  some- 
what with  the  classification  of  express,  implied,  and  conditional  con- 
tracts. We  may  then  examine  into  some  of  the  properties  or  qualities 
of  all  such  instruments,  and  consider,  for  example,  what  laws  must  be 
consulted  in  determining  their  powers  and  effects;  what  the  results  of 
alteration  may  be;  the  numerous  ways  in  which  the  contract  may 
be  discharged,  and  its  ties  loosened;  what  the  general  canons  are  for 
the  interpretation  or  "  construction  "  of  contracts;  what  damages  may 
be  had  for  breach,  etc.  We  shall  see  that  all  sorts  of  contingencies 
may  be  provided  for  without  hardship;  that  actions  speak  as  loudly 
as  words;  that  the  essential  meeting  of  the  minds  is  well  evidenced  by 
offer  and  acceptance,  and  even  when  the  parties  have  made  an  express 
statement,  it  may  yet  be  most  difficult  to  ascertain  just  what  they  really 
meant. 

CONTRACTS  CLASSIFIED 

60.  (1)  EXPRESS  CONTRACTS.  —  Express  contracts  arise 
only  through  an  offer  and  acceptance.     There  is  an  offer  when  one 
person  communicates  to  another  the  terms  upon  which  he  is  willing 
to  enter  an  agreement  with  the  second  person.     Communication  of 
the  acceptance  to  the  offerer  (the  person  making  the  offer)  by  the 
offeree  (the  person  to  whom  the  offer  is  made)  closes  the  contract, 
and  there  exists  a  binding  agreement  from  that  moment.     To 
make   such   contracts,   no   particular   formalities   are   necessary. 
They  may  be  made  by  letter,  orally,  by  telephone,  telegraph,  and 
almost  by  conduct  alone  (which  would  then  make  it  an  implied 
contract,  see  §  68),  so  close  to  the  line  a  given  set  of  facts  may  lie. 
In  a  certain  sense  there  is  no  distinction  between  an  express  and  an 
implied  contract,  since  one  is  as  real  and  binding  as  the  other. 
What  we  are  now  concerned  with  is  how  the  contract  springs  into 
being.     The  test  in  either  case  is,  "  Was  there  a  real  meeting  of 
the  minds,  and  an  intention  to  contract?  " 

61.  How  Made.  —  But  one  should  beware  of  mere  negotia- 
tions or  counter-proposals  intended  to  be  merely  preliminary  to 
the  real  agreement,  as  when,  for  example,  there  is  a  series  of 
letters  containing  proposals,  questions,  answers,  etc.     The  guiding 

57 


§  62  CONTRACTS 

rule  may  be  briefly  stated:  In  order  to  make  an  express 
contract,  there  must  be  a  definite  offer,  and  an  unqualified, 
unconditional,  and  unequivocal  acceptance  of  the  offer  in  all  its 
terms.  Failing  this,  there  is  not  an  express  contract.  But  this 
is  not  saying  that  an  implied  contract  may  not  arise  from  the 
transaction. 

From  the  above  statements  it  may  be  seen  that  all  important 
contracts  relating  to  engineering  or  other  work  should  be  precise, 
concise,  and  in  writing,  as  this  is  the  best  form  of  evidence  of  the 
real  intention  of  the  parties,  and  is  therefore  most  likely  to  save 
future  trouble. 

62.  An  offer  is  not  binding  until  accepted.     But  the  offer 
may  well  dictate  the  time,  place,  and  terms  of  acceptance,  and 
may  make  a  compliance  with  these  details  a  real  condition  prec- 
edent to  the  formation  of  any  contract  at  all.     In  effect,  such 
an  offer  says,  for  example,  "  If  you  do  not  reply  before  such  a 
day,  or  in  a  particular  way,  there  shall  be  no  contract  even  if  you 
accept  unconditionally  in  some  other  way,  or  upon  the  day  after." 
The  engineer  or  contractor  should  note  that  published  instruc- 
tions to  bidders,  where  work  is  to  be  let,  fall  plainly  under  this 
rule.     Much  loss   and   inconvenience   has   often   followed   from 
neglecting  to  observe  it. 

63.  ACCEPTANCE.  —  In  general,   acceptance    is  complete 
from  the  moment  the  answer  is  despatched  by  the  acceptor,  and  in 
most  States  it  is  not  even  essential  to  the  validity  of  the  contract 
that  the  answer  ever  be  received  by  the  proposer.     This  ap- 
parently anomalous  doctrine  is  worked  out  on  the  theory  that  if 
an  offer  is  sent  by  mail,  for  instance,  this  constitutes  the  postal 
department  the  sender's  agent  to  deliver  the  offer;    and  thereby 
the  recipient  is  tacitly  authorized  to  use  the  same  agency  to 
return  his  acceptance.     Now  as  the  principal  is  responsible  for 
the  acts  of  his  agent,  the  risk  of  never  receiving  the  reply  rests 
upon  the  offerer  and  not  upon  the  offeree.     On  this  basis,  there  is 
a  contract  existing  from  the  moment  the  letter  is  dropped  into 
the  mail-box.     When  there  is  any  difficulty  arising  through  such 
circumstances,  of  course  the  offerer  will  probably  claim  no  con- 
tract was  made,  and  the  acceptor  must  therefore  be  able  to  prove 
by  suitable  evidence  that  he  did  in  fact  mail  the  letter.     This  could 
be  done  by  having  suitable  witnesses  to  the  act,  or  better  and 
simpler,  by  registering  the  letter. 

58 


CONTRACT   PRINCIPLES  §  67 

The  theory  just  outlined  was  early  dissented  from,  however,  by  the 
Courts  of  Massachusetts,  and  so  for  nearly  a  century,  in  that  Commonwealth, 
it  has  been  held  that  the  contract  is  not  complete  until  the  acceptance  is 
received  by  the  offerer. 

64.  There  is  no  formality  required  for  an  acceptance,  save  that 
it  must  be  unconditional,  and  identical  in  terms  with  the  offer. 
What  constitutes  an  acceptance  will  depend  upon  all  the  circum- 
stances, since  it  may  sometimes  be  fairly  implied.     It  is  to  be 
noticed,  however,  that  in  law,  silence  (alone)  does  not  give  consent. 
Neither  does  a  mere  mental  resolution  to  accept  create  a  valid 
acceptance;   there  must  be  some  overt  and  unequivocal  act  evi- 
dencing   the    resolution.     As    previously    indicated,    an    uncon- 
ditional acceptance  cannot  be  withdrawn,  since  making  it  ripens 
the  offer  into  a  binding  contract. 

65.  Revocation.  —  It  should  be  noted,  in  distinction  to  the 
foregoing,  that  a  revocation  of  an  offer  is  ineffective  until  actually 
received  by  the  offeree.     This  is  explained  by  saying  that  if  I  have 
made  an  offer  to  another,  he  in  good  faith  may  suppose  I  mean  it, 
and  act  in  reliance  upon  that  offer.     Thus  he  may  incur  extensive 
obligations  by  reason  of  my  offer,  so  that  great  hardship  would 
result  from  my  withdrawal.     The  very  least  I  can  do  is  actually 
to  bring  home  to  him  the  fact  that  I  am  no  longer  backing  up  the 
offer.     In  a  word,  I  may  withdraw  too  late  to  escape. 

66.  Public  Offers.  —  An  offer  may  be  addressed  to  the  public 
by   an   advertisement,    circulars,    posters,    etc.     In   these   cases 
acceptance  will  usually  be  by  conduct  (as  in  reward  cases)  and 
no  notice  of  acceptance  will  be  given  the  offeror  save  notice  of  the 
performance. 

A  public  notice  is  a  preliminary  to  nearly  all  construction 
contracts  entered  into  by  municipalities,  as  the  law  or  ordinance 
usually  requires  them  to  advertise  for  bids  to  insure  competition. 
It  should  be  observed,  however,  that  this  offer  to  receive  bids  is 
no  part  of  the  contract,  but  is  merely  an  offer  to  consider  proposals 
which  interested  parties  may  choose  to  make.  This  public 
announcement  may  frequently  dictate  the  terms  upon  which 
proposals  offered  it  will  be  considered,  as  for  example,  that  the 
proposals  must  be  received  before  a  certain  tune,  that  a  blank 
form  for  bidders  must  be  used,  that  a  certified  check  must  accom- 
pany the  bid,  etc. 

67.  A  public  offer  to  enter  into  a  contract  may  be  revoked  in 

59 


§  68  CONTRACTS 

the  same  way,  provided  no  one  has  acted  upon  it.  This,  of  course, 
is  to  prevent  one  from  repudiating  his  just  obligations  when 
the  acceptor  has  fully  performed  the  contract,  relying  upon  the 
public  offer.  This  does  not  mean  that  if  some  one  has  acted  upon 
the  offer,  it  can  never  subsequently  be  withdrawn,  but  that  it  can- 
not be  withdrawn  with  reference  to  him  who  has  acted  in  reliance 
upon  it. 

68.  (2)  IMPLIED  CONTRACTS.  —  The  subject  of  implied 
contracts  is  an  extremely  complex  one,  as  there  is  a  vast  difference 
between  discovering  some  last  shade  of  significance  in  the  words 
really  used  in  an  existing  contract,  and  on  the  other  hand,  analyzing 
a  set  of  facts  or  circumstances  and  determining  whether  or  not  the 
law  will  imply  a  contract  thereupon,  the  parties  themselves  never 
having  mentioned  contract  at  all.     The  difficulties  are  also  some- 
what enhanced  by  the  limitations  of  all  language,  for  it  is  true  that 
every  expression  of  intention,  no  matter  how  specific,  must  carry 
along  by  implication  much  more  than  is  actually  expressed.     The 
law  recognizes  this  fact,  also,  for  the  rule  applied  in  coming  at  the 
meaning  of  any  instrument  in  writing  is  that  all  natural  meanings 
and  inferences  are  to  be  read  into  the  words  as  used.     This  general 
matter  is  further  developed  under  the  topic  "  construing"  or 
the  "  construction  "  of  contracts   (see  §  80,  et  seq.)  —  i.e.,  the 
parties  having  said  so  and  so,  just  what  is  the  legal  effect  of  their 
words? 

69.  As  a  rough  but  fairly  safe  guide  for  the  detection  of  this 
type  it  may  be  said  that  there  is  an  implied  contract  whent  from 
all  the  circumstances,  the  parties  show  a  mutual  intention  to  contract. 

Example:  Suppose  A  writes  to  B,  a  maker  of  surveying  instruments, 
asking  the  price  of  such  and  such  a  transit.  Upon  being  informed,  he  orders 
the  transit  to  be  sent  him.  This  is  plainly  an  offer  and  an  acceptance.  The 
case  for  an  express  contract  would  be  even  stronger  if  A,  in  his  letter  ordering 
the  transit,  mentioned  the  price  quoted,  or  said  in  effect  that  he  would  remit 
the  price  quoted  upon  receipt  of  the  instrument.  But  now  suppose  A,  in 
his  first  letter,  simply  orders  a  transit  that  meets  certain  specifications,  but 
does  not  mention  any  price  that  he  is  willing  to  pay.  Upon  receipt  of  this 
order,  B  ships  the  transit,  with  a  bill  for  it.  Under  these  facts,  there  is  an 
implied  contract  to  pay  for  the  instrument,  and  B  may  sue  A,  if  necessary, 
to  recover  the  price  of  the  transit. 

70.  Following    somewhat    from    the    discussion    just    given 
implied  contracts,  a  sound  proposition  is  that  the  law  will  not 
imply  a  contract  which  is  in  a^y  way  illegal,  as  this  would  be  like 
suicide  to  any  theory  of  Uw. 

60 


CONTRACT   PRINCIPLES  §  71 

This  point  might  be  well  illustrated  by  the  following  case:  Suppose  a 
foreign  corporation  built  a  bridge  in  another  State  without  having  first  secured 
from  the  proper  authorities  a  license  to  do  business  within  that  State.  After 
having  built  the  bridge,  the  corporation  was  not  allowed  to  sue  upon  its 
contract  (express),  nor  even  to  recover  the  cost  of  the  work  under  an  implied 
one.  It  might  be  argued  that  as  the  foreign  corporation  erected  the  structure, 
of  which  the  other  party  received  the  benefits,  therefore  there  is  an  obligation 
to  pay  for  that  benefit,  even  though  the  corporation  had  failed  to  obtain 
permission  to  do  business  legally  in  that  State.  The  analysis  will  be  assisted 
if  we  recall  that  only  legally  competent  parties  can  make  binding  contracts 
(§  23).  In  this  case  the  corporation  is  legally  incompetent,  for  the  reasons 
just  stated.  Now  if  the  law  allows  an  implied  contract  to  be  declared  as 
existing  between  the  parties,  the  essential  principle  that  only  competent 
parties  can  contract  is  nullified  and  set  aside.*  (See  §  264.) 

70  A.  Estimated  Quantities;  Representations.  —  Questions 
relative  to  estimated  quantities  as  a  part  of  the  contract  have  been 
frequently  litigated.  The  Water  Commission  of  a  city  advertises  a 
contract  to  build  a  dam.  The  information  to  bidders  contains 
the  usual  clause  that  the  estimated  quantities  are  approximate, 
and  that  bidders  must  satisfy  themselves  of  the  conditions. 

Shortly  after  starting,  contractor  found  the  original  quantities  greatly 
underestimated,  —  in  this  case  the  difference  being  such  as  to  require  an 
entirely  different  plant.  The  outlay  incident  to  installing  new  plant  led 
to  a  discussion  about  securing  different  unit  prices  for  the  work.  The  engi- 
neer, pursuant  to  contract  authority,  ordered  discontinuance  of  the  work. 
Suit  was  brought  to  recover  on  the  contractor's  bond  for  faithful  per- 
formance. 

The  Court  dismissed  the  suit  against  the  contractor  and  said  that  the 
representations  in  the  notice  as  to  quantities  carried  with  it  the  (sufficiently 
implied)  assertion  of  being  made  upon  the  basis  of  superior  knowledge.  Their 
purpose  was  to  supply  information  to  persons  expected  to  act  upon  it,  and 
who  were  undoubtedly  to  accept  it  as  expressing  what  it  purported,  namely 
information  based  upon  such  superior  knowledge. 

The  facts  involved  in  the  representations  were  not  equally  available  to 
both  parties,  nor  within  the  observation  of  the  contractors,  and  involved  an 
investigation  of  conditions,  study  and  computations  requiring  expert  technical 
knowledge.  They  were  made  with  intent  of  being  acted  upon,  by  a  party 
rightfully  assumed  to  possess  this  superior  knowledge  based  upon  expert 
examination  and  study. 

As  we  proceed,  frequent  mention  will  be  made  of  implied  con- 
tracts and  the  student  is  urged  to  give  earnest  effort  to  master 
their  characteristics.  Another  excellent  illustration  of  an  implied 
contract,  combined  with  a  condition  precedent,  will  be  found  in 
the  passenger  case  outlined  in  Appendix  Note  No.  4. 

71.  CONDITIONAL  CONTRACTS.  —  The  word  "  condi- 
tional "  applied  to  contracts  has  practically  the  same  meaning 
as  in  the  common  and  popular  sense,  but  the  importance  of 

*  A  somewhat  less  harsh  result  might  be  worked  out  in  this  case  in  the  field 
of  equitable  jurisprudence  known  as  Quasi-Contracts.  See  §  129. 

61 


§  72  CONTRACTS 

certain   of  the    conditions    known   to    contract    law,    warrants 
special  mention  of  it  here. 

A  contract  is  said  to  be  conditional  if  its  performance  is  made 
dependent  upon  some  future,  uncertain  event  or  contingency. 
If  that  event  does  not  happen  then  there  is  no  obligation  to  per- 
form the  contract. 

A  familiar  example  is  an  insurance  policy  wherein  the  Company  makes 
its.  liability  "  conditioned  "  upon  the  happening  of  a  certain  event.  If  the 
property  burns,  then,  in  that  event,  the  promisor's  contract  is  to  become 
effectual  and  enforceable.  Otherwise  not. 

72.  The  condition  may  be  either  express  or  implied,*  and  if 
implied  this  will  sometimes  render  the  detection  of  an  operative 
contract  a  very  difficult  thing.     The  test  lies  in  ascertaining  the 
intention  of  the  parties.     But  if,  on  the  other  hand,  the  parties 
to  a  contract  have,  in  plain,  unambiguous  language,  made  the 
happening  of  an  event,  or  the  observance  of  a  certain  requirement, 
the  condition  upon  which  the  promise  is  to  be  performed,  the 
courts  will  enforce  their  deliberate  act.     (103  N.  Y.  341.) 

In  contracts,  three  sorts  of  conditions  are  recognized:  Con- 
ditions precedent,  subsequent,  and  concurrent  or  dependent  conditions. 
We  shall  illustrate  each  in  turn. 

73.  A  Condition  Precedent  is  present  when  the  performance 
of  some  promise  is  made  dependent  upon  the  doing  of  some  act, 
generally  by  the  promisee,  or  upon  the  happening  of  some  event 
after  the  terms  of  the  contract  have  been  agreed  upon.     Such  a  con- 
dition must  be  strictly,  literally,  and  punctually  performed,  or 
a  valid  excuse  for   noncompliance  shown.     (2  Peters  U.  S.  96.) 
Hence  failure  to  perform  such  a  condition  is  a  breach  of  the 
contract   and   precludes   recovery   upon   the   same.f     (12   Fed. 
Rep.  343.) 

Conditions  precedent  are  of  especial  importance  to  engineers 
since  numerous  important  ones  are  frequently  inserted  in  engineer- 
ing contracts.  Thus,  it  may  be  provided  that  the  engineer  shall 
estimate,  approve,  inspect,  and  determine  the  amount  due  and 
to  be  paid  for  work  done,  in  such  a  way  that  these  things  shall  be 
conditions  precedent  to  the  contractor's  right  to  demand  payment. 
As  there  will  easily  be  an  opportunity  for  unfairness  here,  the 
courts  are  loath  to  enforce  such  a  condition  unless  it  is  made 

*  See  Appendix  Note  4.     "  Implied  Condition  Precedent." 

t  See  Appendix  Note  5.     "  Time  Element  as  a  Condition  Precedent." 

62 


CONTKACT   PRINCIPLES  §  74  A 

plainly  one  of  the  terms  of  the  contract.  But  if  it  has  been  so 
expressed,  then  the  requirements  must  be  strictly  observed 
before  the  owner  can  be  sued  for  work  done. 

Again,  it  may  be  specified  that  the  measurements  of  quan- 
tities are, to  be  made  thus  and  so  (the  contract  being  for  a  unit- 
price,  e.g.  50c.  per  cu.  yd.  of  excavation);  or  "  the  liability  is  to 
be  established  or  ascertained  in  the  manner  following,"  etc.; 
doing  these  things  are  conditions  precedent  to  the  right  to  sue  for 
the  value  of  work  done.  And  it  is  well  settled,  also,  that  no 
question  of  ousting  the  court's  jurisdiction  enters  such  an  agree- 
ment, since  it  is  admitted  to  be  well  within  the  legal  rights  of  the 
parties  to  covenant  that  no  right  of  action  shall  arise  until  speci- 
fied things  have  been  done,  as  that  a  third  party  shall  pass  upon 
their  differences,  etc.  (17  N.  Y.  173.) 

74.  Language  to  be  Used.  —  It  has  been  repeatedly  stated 
hitherto,  that  a  highly  important  factor  in  determining  the  effect 
and  validity  of  a  contract  is  "  the  intention  of  the  parties. "  This 
principle  is  equally  important  with  respect  to  condition  precedent. 
Therefore  the  use  of  the  words  "  condition  precedent  "  is  not 
necessary  to  create  one.  Mr.  Wait  (Eng.  &  Arch.  Jurisp.  §  415) 
collects  authorities  and  says,  "  to  pay  what  the  engineer  shall 
certify  the  contractor  is  entitled  to,"  —  or  "  when  and  not  before 
the  architect  shall  have  certified,"  —  or,  "  to  pay  upon  his  estimate 
and  certificate,"  —  or,  "  to  have  the  price  payable  after  a  certificate 
of  approval  shall  have  been  issued  by  the  engineer,"  —  or  "  to 
pay  upon  approval  and  acceptance  by  the  engineer  and  owner,"  — 
have  each  been  .held  to  be  a  sufficient  expression  to  constitute  a 
real  condition  precedent.  Similarly,  if  materials  are  purchased 
subject  to  inspection  by  the  engineer,  they  need  not  be  accepted 
or  paid  for  if  rejected  by  him,  and  this  condition  may  be  nearly 
as  well  implied  as  expressed.  Reflection  will  doubtless  suggest 
other  instances  to  the  student. 

74  A.  Implied  Condition  Precedent;  Good  Faith.  — Where  a 
building  contract  provided  for  payments  upon  the  final  certificate  of 
the  architect,  ordinarily  its  issuance  is  conclusive  as  to  the  perform- 
ance of  the  contract ;  but  in  order  to  have  this  effect  the  architect 
must  have  exercised  an  honest  judgment  in  issuing  it,  and  any 
fraud  or  want  of  good  faith  destroys  its  force,  and  renders  it  sub- 
ject to  impeachment. 

This  language  also  appeared:  "It  is  further  mutually  agreed 

63 


§  75  CONTRACTS 

between  the  parties  hereto  that  no  certificate  given  ...  or 
payment  made  shall  be  construed  to  be  an  acceptance  of  defective 
work."  This  was  held  sufficient  to  sustain  an  action  for  damages 
resulting  from  latent  defects  or  defective  workmanship  in  the 
building,  brought  within  a  reasonable  time  after  the  discovery  of 
such  defects.  This  is  seen  to  be  something  analogous  to  a  con- 
dition subsequent  (see  §  75),  since  it  in  a  sense  revives  a  contract 
already  discharged,  the  happening  of  an  event  not  contemplated, 
and  substantially  modifying  the  relations  of  the  parties,  sufficient 
to  permit  recovery. 

75.  Conditions  Subsequent.  —  A  condition  precedent  specifies 
something    which    must    happen    before    the    contract    becomes 
operative.    A  condition  subsequent  is  present  when  it  is  provided 
that  upon  the  happening  of  some  event  or  contingency  the  obliga- 
tion of  an  existing  contract  shall  cease  and  be  discharged,  but  the 
term  implies  some  event  other  than  the  normal  discharge  of  full 
performance. 

To  illustrate,  suppose  A  has  made  an  agreement  with  S  whereby  he 
becomes  the  owner  of  a  100  H.P .  boiler  belonging  to  S.  The  express  condition 
is  that  if  he  fails  to  take  the  boiler  away  within  ten  days,  he  forfeits  the  title 
already  obtained.  A  calls  for  it  two  weeks  later,  but  delivery  is  refused. 
Has  he  any  remedy  against  S? 

76.  Another,  but  less  clear-cut,  example  would  be  found  in  a  contract 
provision  that  if  there  is  a  default  in  performance,  the  owner  shall  have  the 
right  to  complete  at  the  contractor's  expense.     Here  the  default  is  a  con- 
dition precedent  to  the  owner's  right,  and  a  condition  subsequent  varying 
substantially  the  contractor's  obligation.     Conditions  subsequent  also  occur 
frequently  in  conveyances  of  real  estate,  where  the  restrictive  clauses  are  to 
the  effect  that  if  the  buyer  subsequently  does  thus  and  so,  then  his  title  is 
to  be  forfeited.     The  courts  regard  this  type  of  condition  (in  deeds)  as  being 
somewhat  opposed  to  public  policy,  and  hold  that  such  a  condition   must  be 
very  clearly  expressed  in  order  to  be  effective,  and  even  then  the  result  may 
often  be  in  doubt. 

76  A.  Implied  Contract,  Implied  Conditions,  etc.  —  The  fol- 
lowing points,  decided  by  the  U.  S.  Supreme  Court  in  1914,  furnish 
some  useful  illustrations. 

A  contractor  was  to  build  a  dry-dock  at  a  U.  S.  Navy  Yard. 
The  U.  S.  Government  was  therefore  the  other  contracting  party. 
When  the  work  was  well  advanced,  the  Government  decided  to 
make  extensive  changes  in  the  dock-floor,  and  several  supple- 
mental contracts  were  entered  into  to  cover  the  work  as  changed. 

The  original  specifications  provided  for  $25  per  day  as  liquidated  damages 
for  delay  in  completion  beyond  a  certain  date.  The  rate  of  progress  had 
been  satisfactory  and  up  to  schedule  until  the  date  of  making  the  supple- 
mental contracts,  but  after  that  the  contractor  was  found  by  the  Court  to 

64 


CONTRACT   PRINCIPLES  §  76  B 

have  been  somewhat  dilatory,  delaying  completion  beyond  a  time  reasonably 
to  have  been  expected,  and  beyond  the  date  first  set  for  completion.  The 
Government  undertook  to  impose  the  $25  per  day  penalty  for  all  of  the  delays 
due  to  the  fault  of  the  contractor.  There  was  no  extension  of  time  mentioned 
in  the  supplemental  contracts. 

The  questions  presented  are: 

1.  What  was  the  condition  precedent  directly  affecting  the  validity 
of  the  $25  per  day  claim?     Answer:  Failure  to  complete  on  or  before 
a  certain  date,  as  per  the  terms  of  the  original  contract. 

2.  Did  the  supplemental  contracts,  which  did  not  mention  any 
extension  of  time,  properly  imply  such  extension?     Answer:    The 
Court  held  that  under  the  conditions  found  such  an  extension  was 
a  reasonable  implication,  the  changes  having  been  made  for  the 
benefit  of  the  Government,  and  at  its  request. 

3.  Did  these  various  intertwined  conditions,   mostly  implied, 
change  the  date  from  which  to  begin  to  count  the  penalty,  or  would 
they  operate  to  prevent  the  operation  of  the  penalty  at  all?     Answer: 
The  Court  held  that  since  they  had  mentioned  one  date  only, 
namely  that  set  in  the  original  contract,  it  could  not  make  a  new 
contract  for  them  by  changing  that  date,  and  since  they  had  by 
their  own  act  (by  reasonable  implication),  changed  that  date,  and 
had  mentioned  no  other,  there  was  now  no  date  from  which  to 
begin  to  count  the  penalty.     This  did  not  mean,  however,  that  in 
case  the  Government  had  suffered  actual  damage  through  the  delay, 
and  was  able  to  prove  it,  that  it,  could  not  still  recover  such  dam- 
ages as  it  was  able  to  establish.     This  particular  case,  it  will  be 
noticed,  was  dealing  with  the  liquidated  damages  alone.     The 
Court  said,  in  substance: 

"  The  party  seeking  to  enforce  the  penalty  of  liquidated  damages  must 
not,  by  his  own  act,  prevent  the  performance  within  the  time  stipulated,  for 
such  act  will  be  considered  a  waiver  of  said  damages  first  agreed  upon." 

Summary.  —  Questions  1  and  2  are  seen  to  illustrate  Implied 
Conditions.  Question  3  might  equally  well  be  regarded  as  a 
Condition  Implied  in  Fact,  or  as  an  Implied  Condition  Subsequent, 
since  the  act  of  the  parties,  subsequent  to  the  original  agreement, 
has  by  natural  implication  brought  to  an  end  a  portion  of  the 
agreement  previously  existing. 

76  B.  Implied  Contract.  —  On  the  same  job,  high-speed  gear- 
ing for  operating  certain  valves  in  the  dock  would  be  very  dan- 
gerous to  persons  working  or  passing  in  close  proximity  to  them. 

65 


§  76  C  CONTRACTS 

Neither  the  contract  or  specifications  mentioned  protective  casings 
for  them,  nor  was  it  customary  for  the  manufacturers  to  furnish 
such  casings.  As  the  contractor  had  the  work  arranged,  none  of 
his  workmen  needed  to  be  near  this  machinery,  but  the  Govern- 
ment built  a  plank-walk  so  close  to  it  that  the  contractor  was 
obliged  to  install  protective  casings  at  an  expense  to  him  of  $500. 

Question:  Would  these  facts  imply  an  "  extra  "  upon  which 
the  Government  would  be  obliged  to  pay  the  amount  stated? 
Answer:  The  Court  held  that  it  did. 

Summary.  —  This  is  plainly  an  implied  contract,  assuming 
that  there  was  no  request  nor  order  upon  the  part  of  the  Govern- 
ment for  the  erection  or  furnishing  of  the  casings. 

76  C.  Blanket  Clauses,  and  Implied  Condition  Subsequent.  — 
On  this  same  job,  the  specifications  made  the  contractor  "  re- 
sponsible for  every  part  of  the  work,  and  all  appliances  and 
property  used  in  connection  therewith,  and  to  specifically  assume 
all  risks  of  damage  or  injury  to  persons  or  property,  and  to  protect 
the  United  States  against  any  claims  for  such." 

Certain  water-pipes  in  the  Navy  Yard  were  required  by  contract 
to  be  connected  to  the  contractor's  piping,  but  violent  and  extreme 
fluctuations  of  pressure  in  the  Government  pipes,  over  which 
the  contractor  had  no  control  nor  warning  of  such  pressure,  twice 
broke  the  contractor's  pipes  despite  reasonable  precautions  taken 
by  him.  To  repair  the  damages  so  caused,  the  contractor  was 
put  to  an  expense 'of  $700,  and  the  Government  refused  payment 
of  the  bill. 

Question:  Does  the  blanket  language  of  the  specifications  cover 
such  a  case?  If  so  the  Government  is  right,  and  the  contractor 


The  Court  held  that  such  a  contingency  could  not  reasonably 
be  held  to  have  been  in  the  minds  of  the  parties  to  the  contract, 
and  that  the  acts  of  the  Government  in  this  respect  amounted  to 
a  condition  subsequent,  at  least  as  to  these  clauses  of  the  specifi- 
cations. To  this  extent  these  acts  put  an  end  to  a  condition  of  the 
contract  previously  existing  and  inuring  to  its  benefit. 

77.  Dependent  Conditions.  —  It  will  frequently  happen  that 
the  obligation  of  one  promise  is  conditional  upon  the  due  per- 
formance of  the  other,  and  though  each  party  is  bound  to  be 
willing  and  able  to  do  his  own  part,  yet  perhaps  he  is  not  bound 
to  do  it  first.  Where  the  conditions  are  mutual  in  such  a  sense 

66 


CONTRACT    PRINCIPLES  §  80 

that  each  depends  upon  the  other,  they  are  called  dependent, 
concurrent,  or  mutual  conditions. 

Illustration:  An  owner  of  land  agreed  to  sell  the  same  and  deliver  a  deed 
on  a  certain  day  when  the  purchase  money  was  to  be  paid.  Being  distrustful 
of  each  other,  neither  party  was  willing  to  do  his  part  first.  The  Court  held 
that  the  matters  of  delivering  the  deed  and  making  payment  were  concurrent 
and  dependent  conditions.  The  point  for  the  lay  reader  is  that  if  one  party 
performed  the  other  could  be  made  to  do  so,  or  else  the  valuable  thing  parted 
with  by  either  party,  as  the  deed  or  the  money,  could  be  recovered.  For  if 
the  implied  concurrent  condition  be  not  met,  there  is  no  contract. 

78.  To  carry  the  point  farther,   suppose  X  sells   certain  well-drilling 
apparatus  to  Y  for  $900.     But  though  the  negotiations  have  resulted  in  an 
offer  and  an  acceptance,  yet  they  have  not  stated  how  or  when  the  money 
is  to  be  paid.     Y  wishes  X  to  take  his  note  for  30  days,  but  X  mistrusts  Y's 
financial  responsibility  and  refuses  to  deliver  unless  Y  pays  in  cash.     Y  wants 
the  plant  to  use,  and  sues  X  for  breach  of  contract  for  non-delivery.     Can  he 
recover? 

In  the  abstract,  this  a  good  illustration  of  what  is  meant  by  concurrent 
conditions.  In  the  law  of  Sales,  however,  this  particular  sort  of  a  case  is 
taken  care  of  on  grounds  of  business  convenience  and  public  policy  by  the 
rule  that  where  no  time  is  agreed  upon  for  payment,  then  it  is  understood  (or 
implied)  to  be  a  cash  sale.  Hence  if  Y  does  not  come  forward  with  the  cash 
he  cannot  win  his  suit. 

79.  Summarizing,  it  will  be  seen  that  the  principal  difference 
between  a  condition  precedent  and  a  concurrent  condition  is  a 
matter  of  time.     If  the  one  thing  must  plainly  be  done  wholly  and 
completely  before  the  other  can  be  done,  the  condition  is  prec- 
edent; but  if  the  time  of  performance  on  both  sides  is  practically 
the  same  moment,  it  is  a  contract  with  cor  current  conditions. 
It  is  hoped  these  definitions  have  been  made  sufficiently  clear, 
hence  "  conditions  "  will  be  pursued  no  farther  here. 

CONSTRUCTION,  OR  INTERPRETATION  OF 
CONTRACTS 

80.  Attorneys  say  that  probably  seventy-five  per  cent  of  the 
litigation  in  court  at  the  present  moment  is  due  to  the  fact  that 
some  one,  either  a  lawyer  or  a  layman,  has  at  some  stage  of  the 
proceedings  failed  to  state  with  exactness  and  clarity  just  what 
was  intended  in  a  writing,  or  in  an  oral  declaration.     Consequently 
whether  this  has  resulted  through  ignorance,  carelessness,  or  sheer 
slovenliness  of  expression,  the  document  or  statement  must  needs 
be  construed,  or  interpreted  by  a  court  of  law.     In  the  attempt 
to  systematize  whole  groups  of  ambiguous  clauses  there  have  been 
framed  so-called  "  Rules  of  Construction."     The  student  should 
note  at  the  outset,  however,  that  they  are  but  a  make-shift  and 

67 


§  81  CONTRACTS 

a  crutch  to  assist  litigants  over  their  difficulties.     Obviously  the 
proper  thing  is  to  render  them  unnecessary. 

81.  The  principal  rule  is  to  ascertain  the  real  intention  of  the 
parties.     (The  central  effort  in  lawsuits  over  the  matter  is  to 
establish  the  true  significance  of  the  word  "  real.")     To  accom- 
plish this  result,  the  words  used  must  be  taken  in  their  ordinary 
and  popular  meaning  unless  they  have  a  special  technical  sig- 
nificance.    If  technical  terms  are  used  in  a  writing,  these  are 
properly  explained  by  oral  testimony,  although  by  the  law  of 
evidence,  the  terms  of  a  written  document  cannot  be  varied  by 
oral  testimony.     In  arriving  at  a  proper  interpretation  of  the 
parties'  meaning,  all  the  given  circumstances  of  time,  place,  and 
their  relative  positions  to  each  other,  and  even  general  standing 
in  society,  may  need  to  be  considered  as  bearing  upon  their  prob- 
able understanding  and  intelligence.     Another  important  rule  is 
that  a  document  is  to  be  construed  as  a  whole,  making  all  the 
terms  effective  if  it  can  be  done.     If  this  is  not  possible,  those 
terms  inconsistent  with  the  real  intention  of  the  parties  will  be 
rejected. 

82.  Important    engineering    contracts    with   their    plans    and 
specifications  are  frequently  voluminous,  and  often  several  persons 
have  been  engaged  in  preparing  them.     Hence  it  will  not  be 
strange  if  inconsistencies   or   contradictions   of  greater   or  less 
degree  appear,  especially  as  the  whole  may  be  assembled  in  its 
final  form  somewhat  hurriedly.     Suppose  there  is  a  direct  conflict 
in  the  plans  or  specifications  with  some  part  of  the  contract  (i.e., 
the  "  general  provisions  ")  and  this  discrepancy  relates  to  a  really 
important  matter.    Which  shall  prevail?    Again  we  must  revert  to 
the  principle,  "  The  real  intention  of  the  parties  must  prevail."    It 
is  plain  that  if  the  two  inconsistent  statements  are  the  only  evi- 
dence available,  there  is  a  deadlock,  and  each  nullifies  the  other. 
But  there  generally  will  be  other  evidence  of  the  intention  of  the 
parties  to  which  due  weight  must  be  given.     The  conduct  of  the 
parties  will  be  a  highly  important  fact,  because  if  they  did  so  and 
so,  either  before  or  after  signing  the  contract,  this  shows  in  a  very 
practical  fashion  what  they  understood  or  believed  it  meant. 

Suppose  in  a  piece  of  railroad  grading  the  "  contract  "  stated  that  the 
borrow  should  on  no  section  exceed  a  certain  amount.  But  on  the  plan  of 
the  located  line,  there  were  shown  frequent  borrows  in  excess  of  this  amount. 
As  the  work  proceeds  the  resident  engineer  gives  all  necessary  directions  for 
each  borrow-pit  and  the  contractor  performs  the  work  without  making  any 

68 


CONTRACT   PRINCIPLES  §  84 

objection.  This  will  preclude  him  from  demanding  a  literal  interpretation  of 
the  language,  since  there  is  plenty  of  evidence  that  the  "  real  intention  "  was 
to  make  the  borrows  of  whatever  amount  and  location  the  engineer  directed. 

83.  Relative  Importance  of  the  Parts.  —  With  regard  to  the 
weight  to  be  given  different  parts  of  the  document,  in  case  of 
contradiction,  generally  the  contract  (as  distinguished  from  the 
specifications)  is  likely  to  be  regarded  as  the  dominant  part  of  the 
instrument.     It  is  probably  true  that  more  care  and  diligence 
will  have  been  exercised  in  its  preparation,  its  execution  with 
legal  formalities  by  the  real  parties,  instead  of  by  their  agents, 
etc.,  all  tending  to  the  same  result.     Another  reason  why  the 
contract  is  often  considered  as  having  more  weight  than  the 
specifications  is  that  the  latter  are  more  frequently  changed  as 
the  work  progresses  and  new  developments  arise.     Every  engineer 
is  very  familiar  with  this  fact.     It  is  a  general  rule,  to  be  noted 
here,  that  in  case  of  conflict  between  written  and  printed  parts, 
those  written  will  have  precedence. 

It  should  be  clearly  understood,  however,  that  there  is  no 
fixed  rule  as  to  relative  weights  of  the  parts,  for  the  only  invariable 
one,  in  case  of  disputes,  is  that  the  courts  must  exhaust  every 
legitimate  means  to  ascertain  what  the  real  intention  of  the  parties 
was,  and  then  construe  the  language  of  the  contract  in  accordance 
with  it.  The  "  intention  "  thus  found  will  sufficiently  indicate 
which  of  two  conflicting  provisions  is  to  be  thrown  out. 

84.  Argument.  —  The   foregoing   matter   tends   to    establish 
this  proposition:   The  whole  aim  of  our  study  of  contracts  lies 
essentially  in  the  accomplishment  of  two  things:   First,  to  make 
the  stipulations  in  the  contract  of  the  necessary  completeness, 
i.e.,  to  cover  all  present  conditions  as  well  as  all  probable  future 
contingencies,  fully  delineating  the  respective  rights  and  duties 
of  the  parties  thereunder.     Second,  to  couch  the  intentions  in 
clear  and  unmistakable  language,  free   from  inconsistencies  or 
ambiguities,  so  that  the  only  meaning  which  can  be  put  upon  the 
phraseology  used  is  in  fact  just  what  the  parties  intended. 

It  thus  appears  that  the  whole  matter  of  construing  a  contract 
is  a  vital  one,  and  that  it  has  a  direct  bearing  upon  the  usefulness 
of  the  contract.  A  study  of  how  the  courts  have  passed  upon 
specific  contracts  in  the  past  forms  the  best  guide  to  what  they 
would  probably  decide  upon  the  terms  of  a  given  contract.  This 
is  the  mode  of  studying  law  known  as  the  case  system. 

69 


§  85  CONTRACTS 

Illustration:  Judicial  Interpretation  of  "  Satisfaction."  Take,  for  in- 
stance, the  provision  "  the  work  shall  strictly  conform  to  the  specifications, 
and  shall  be  to  the  satisfaction  of  the  owner."  Can  the  owner  arbitrarily  put 
great  hardship  on  the  contractor,  and  cause  him  either  great  loss  in  money 
or  in  reputation  by  refusing  to  be  satisfied,  even  though  the  specifications  are 
substantially  complied  with?  No,  plainly  this  would  open  a  way  to  injustice 
and  fraud  which  the  law  will  not  tolerate.  And  even  though  the  terms  of  the 
original  agreement  have  not  been  satisfied,  —  since  the  contractor  was  to 
work  until  the  owner  was  satisfied,  —  if  a  reasonable  man  would  say  that  the 
owner  had  refused  to  be  satisfied  when  he  ought  reasonably  to  be  so,  then  at 
least  that  part  of  the  contract  will  be  considered  to  be  abrogated  and  set 
aside.  And  furthermore,  the  contractor  might  be  allowed  to  recover  upon  an 
implied  contract  for  the  fair  value  of  the  work  done. 

85.  CUSTOM  AND  USAGE.  —  In  writing  a  contract  it  will 
frequently  happen  that  by  oversight  some  provisions  for  obtaining 
a  particular  result,  or  obligation  to  be  assumed  if  some  important 
event  comes  to  pass,  will  be  omitted.  Suppose  now  the  event 
happens.  Are  the  parties  wholly  adrift?  Is  each  at  the  mercy 
of  the  other  who  may  take  advantage  of  his  unprotected  position? 
No,  as  the  intention  of  the  parties  has  not  been  fully  expressed 
(possibly  for  the  reason  that  they  did  not  themselves  know  in 
advance  what  they  wanted),  recourse  is  had  to  the  legal  doctrine 
known  as  "  Custom  and  Usage." 

When  we  consider  that  the  common  law  is,  in  its  essence,  but 
the  crystallized  expression  of  custom  and  usage,  solidified  through 
centuries  of  application  to  the  tangled  affairs  of  humanity,  and 
that  these  usages  are  based  upon  justice,  reason,  and  sound  public 
policy,  then  the  wisdom  of  such  a  course  becomes  at  once  apparent. 
There  is  a  well-worn  rule  that  in  developing  the  meaning  and 
powers  of  a  contract,  there  is  as  much  implied  as  expressed.  In 
other  words,  it  is  often  necessary  to  read  between  the  lines,  even 
in  a  legal  document.  Since  it  is  further  apparent  that  it  is  always 
literally  impossible  to  say  in  the  instrument  everything  that  might 
be  said,  what  is  said  must  still  to  a  greater  or  less  extent  be  in- 
terpreted in  terms  of  custom  and  usage.  In  a  word,  it  is  custom 
and  usage  that  makes  the  bare  and,  of  ten  harsh  rules  of  the  common 
law  workable  at  all. 

86.  In  contract  law  it  is  well  established  that  a  contract 
cannot  be  construed  in  the  light  of  custom  and  usage  unless  such 
custom  be  definite,  uniform,  notorious,  and  universal,  so  that  it 
may  be  safely  presumed  that  the  parties  contracted  with  refer- 
ence to  it.  This  indicates  that  the  plea  is  not  to  be  resorted  to 
on  every  slightest  pretext,  and  is  not  to  be  treated  as  a  cure-all 

70 


CONTRACT    PRINCIPLES  §  88 

for  every  piece  of  carelessness  (or  laziness)  on  the  part  of  contract 
writers.  The  weapon  selected  may  prove  to  be  a  two-edged 
sword,  by  no  means  easily  manipulated  to  the  desired  end. 

87.  It  should  be  obvious  that  the  usage  claimed  must  not  be 
contrary  to  the  express  terms  used,  nor  can  a  usage  anywise 
illegal  be  claimed.     The  word  "  universal/'  as  used  above,  evi- 
dently does  not  mean  that  a  custom  must  be  even  State-wide,  but 
that  it  must  be  generally  recognized  over  a  considerable  area. 
The  question  will  thus  arise,  sometimes,  whether  the  usages  of 
one  place  or  of  another  shall  be  followed,  in  case  of  ambiguity  in 
the  contract.     The  principle  seems  to  be  that  if  the  parties  have 
the  same  residence,  usage  of  that  place  controls  a  contract  drawn 
there,  such  usage  being  naturally  in  their  minds.     If  the  contract 
be  made  by  letter,  the  usage  of  the  place  where  the  party  lives 
who  first  referred  to  it  (by  implication)  will  control.     If  the  con- 
tract is  to  be  performed  in  a  certain  place,  it  will  be  construed  as 
referring  to  the  usage  of  that  place.     (For  an  elaborate  discussion 
of  Custom  and  Usage,  giving  many  engineering  illustrations,  see 
Wait,  Eng.  &  Arch.  Jurisp.  §§  620-9.) 

88.  CONFLICT  OF  LAWS.  —  In  these  days  it  is  very  com- 
mon for  important  engineering  contracts  to  be  entered  into  by  citi- 
zens of  different  jurisdictions,  or  for  them  to  be  performed  at  a  place 
other  than  the  domiciliary  State  of  either  party.     A  perplexing 
phase  of  construing  the  contracts  thus  made  is  summed  up  in  the 
question,  "  What  law  governs?  "     The  difficulty  arises  principally 
because  the  States  of  the  Union  are  independent  and  sovereign, 
and  the  limits  of  their  law-making  powers  are  only  found  in  the 
constitutional   powers  granted   exclusively  to   Congress.     Thus, 
while  it  is  true  that  the  common  law  essentials  to  forming  a  valid 
contract  are  everywhere  the  same,  yet  the  enforcement  of  rights, 
duties,  and  privileges  under  them  is  a  subject  about  which  many 
conflicting   laws   have   been  made.     Hence   our   question.     The 
law  books  agree  that  this  subject,  "  Conflict  of  Laws,"  is  of  wide 
extent,  involves  many  exceedingly  difficult  questions,  is  much 
unsettled  and,  on  the  whole,  is  one  of  the  hardest  and  least  satis- 
factory of  legal  subjects  to  study.     A  few  general  rules  only  will 
be  attempted  here.     We  shall  observe,  as  we  proceed,  that  the 
question  of  conflict  of  laws  is  but  an  advanced  stage  of  the  dis- 
cussion of  custom  and  usage.     In  the  one   case  it  is  the  un- 
written law,  and  in  the  other  it  is  statutory  law  that  is  sought  to 

71 


§  89  CONTRACTS 

be  applied.  Probably  less  difficulty  will  be  encountered  in  apply- 
ing the  rules  of  the  common  law  than  when  dealing  with  the 
statutes.* 

89.  Lex  loci  contractus  (meaning,  law  of  the  place  of  contract- 
ing) is  a  familiar  legal  phrase  in  connection  with  which  the  Supreme 
Court  says:  "  The  general  rule  is  that  contracts,  as  to  their  nature, 
validity,  and  interpretation,  are  to  be  governed  by  the  law  of 
the  place  where  made,   unless   the   contracting   parties   clearly 
appear  to  have  had  some  other  law  in  view."     (129  U.  S.  397.) 
This  is  plain  language  from  high  authority;   the  difficulty  often 
lies  in  telling  just  where  a  contract  is  made.     Where  correspond- 
ence results  in  a  contract,  the  rule  is  that  the  offer  ripens  into 
a  contract  the  moment  it  is  accepted,  and  hence  it  is  logical  to 
say  that  the  contract  is  made  where  it  is  accepted.     Thus,  in  a  case 
where  a  contract  made  with  a  drummer  required  ratification  by 
his  employer,  the  contract  was  deemed  to  have  been  made  where 
the  ratification  was  given.     (20  Fed.  Rep.  357.)     (See  also  Offer 
and  Acceptance  §  60.) 

If  the  parties  do  not  designate  any  place  of  performance  for 
the  contract  it  is  governed  by  the  law  of  the  place  where  it  is 
made.  (84  N.  Y.  367.)  But  this  rarely  applies  to  construction 
contracts,  since  in  them  it  is  carefully  stated  just  where  the 
work  is  to  be  carried  out,  where  the  parties  reside,  etc. 

90.  It  has  been  repeatedly  held  that  the  law  of  the  place 
which  the  parties  intended  should  govern;    but  as  this  lops  off  a 
very  large  piece  of  the  general  rule  of  lex  loci  contractus,  the 
cases  exhibit  many  distinctions    and    jarring  decisions  at  this 
point.     An   important    exception  to    this    rule    should   also  be 
noted  with  reference  to  contracts  for  the  sale  of  real  estate  or 
immovable  property;   here  the  rule  is  lex  loci  rei  sitae,  that  is, 
the  contract  is  subject  to  the  law  of  the  place  where  the  land  or 
thing  is  situated.     This  last  rule  is  of  especial  importance,  also, 
in  the  transfer  of  land  by  deed  or  will.     A  will  is  not  a  contract, 
however. 

1  91.  The  question,  "  What  law  governs?  "  takes  on  a  new  form 
when  the  existence  of  the  contract  is  not  in  question  but  other 
jurisdictions  are  involved  in  carrying  it  into  effect,  as  when  recourse 
must  be  had  to  law  to  secure  its  enforcement.  The  assistance  of  a 

*  See  Appendix  Note  6.     "  Statutory  Regulations  Encountered,"  etc. 

72 


CONTRACT    PRINCIPLES  §  92 

court  must  be  sought  and  given  in  an  orderly  and  systematic  way, 
by  and  to  all  within  its  jurisdiction,  for  if  its  regular  procedure  for 
transacting  business  is  nob  observed,  confusion  must  ensue,  and 
the  public  welfare  suffer.  Hence  in  whatever  relates  to  securing 
a  remedy  for  a  breach  of  the  contract,  or  to  obtaining  its  enforce- 
ment, one  must  be  governed  by  the  lex  fori  (the  law  of  the  forum, 
that  is,  the  place  where  the  remedy  is  sought  to  be  applied) .  This 
lex  fori  regulates  every  step  of  legal  process,  controls  the  admission 
of  evidence,  prescribes  the  methods  by  which  the  contract  shall 
be  proved,  etc.,  etc. 

The  principal  point  of  the  discussion  may  be  summarized  in 
the  familiar  rule:  "  A  contract  that  is  valid  and  binding  where 
made  is  valid  and  binding  everywhere;  and  if  void  or  illegal  where 
made,  it  is  generally  held  to  be  void  and  illegal  everywhere  else." 
(Amer.  &  Eng.  Cyclop.  Law.)  But  the  same  authority  indicates 
that  the  opposite  result  may  be  reached  if  the  contract  is  contrary 
to  sound  morals,  or  repugnant  to  public  policy,  —  as  would  be 
expected. 

92.  Engineer  Enforces  Contract.  —  Where  something  is  being 
built  the  engineer  must  usually  construe  and  interpret,  particularly 
the  specifications. 

"  Some  engineers  claim  it  is  inadmissible  to  pry  into  the  contractor's 
affairs,  or  to  exhibit  suspicion  of  his  work,  for  such  treatment  will  drive  any 
man  to  crime.  Such  a  view  betokens  unfitness  for  responsible  charge  of 
work.  Competitive  bids  for  merchandise  do  not  imply  a  suspicion  that 
merchants  are  unfair;  to  ask  for  a  receipt  for  money  paid  does  not  imply  a 
suspicion  that  the  payee  will  later  deny  payment.  It  is  never  dishonorable 
to  ask  a  man  to  fully  perform  his  contract,  and  no  reputable  contractor  will 
refuse  to  do  so.  Producing  bills  of  materials,  when  called  for,  and  receipted 
claims  that  may  later  become  liens  upon  the  work  are  ordinary  safeguards, 
and  in  no  sense  a  persecution  of  the  contractor." 

"  The  contractor  shall  promptly  obey  and  follow  every  direc- 
tion given  by  the  engineer,  including  directions  given  by  way  of 
withdrawal,  modification,  or  reversal  of  any  previous  direction 
given  by  him."  An  editorial  writer  suggests  that  foresight,  hind- 
sight, and  second  sight  would  be  necessary  for  the  contractor  to 
know  what  to  expect  under  this. 

There  is  plainly  an  implied  condition  that  the  engineer  will  direct  the 
work  to  be  done  only  once,  —  right  the  first  time.  Hence  any  expense  in- 
curred in  starting  or  carrying  on  the  work  according  to  the  engineer's  directions 
subsequently  lost  or  undone  in  carrying  out  other  and  conflicting  orders, 
may  properly  be  regarded  as  an  extra,  and  chargeable  as  such. 

Problem:  Write  and  submit  a  fair  clause  covering  "  Engineer's  Directions  " 
in  the  light  of  the  foregoing  clause  and  discussion. 

73 


§  93  CONTRACTS 

DISCHARGE  OF  CONTRACTS 

93.  We  have  previously  considered  how  and  when  a  valid 
contract  is  made,  and  noted  certain  of  the  obligations  arising 
thereunder.     Let   us   now   consider   how   its   existence   may   be 
terminated,  that  is,  how  the  contract  may  be  discharged.     When 
it  is  accomplished,  the  contractual  tie  is  loosened,  the  parties  are 
wholly  discharged  and  freed  from  their  liabilities,  and  are  equally 
deprived  of  their  rights  or  privileges  under  the  contract.     The 
subject  of  discharge  is  a  highly  important  and  practical  matter 
for  the  engineer,  for  while  it  appears  that  the  ways  in  which  a 
contract  can  be  made  are  relatively  few,  yet  the  events  which 
may  work  a  discharge  of  the  contract  are  at  least  a  dozen  in 
number,  and  moreover,  some  events  of  the  list  may  be  accom- 
plished with  the  principal   parties  in  interest  remaining  wholly 
unaware  of  the  fact.     A  diagram  illustrating  the  principal  head- 
ings to  be  treated  under  discharge,  together  with  some  of  their 
principal  subdivisions  or  related  subjects,  will  be  found  at  the  end 
of  this  chapter. 

94.  PERFORMANCE.  —  Probably  the  foremost  method  of 
discharging  a  contract  is  by  the  parties  fully  performing  its  require- 
ments, and  this,  in  fact,  is  the  almost  universal  purpose  for  which 
a  contract  is  ordinarily  entered  into.     Within  this  heading  are 
embraced  all  legitimate  means  of  fulfilling  the  terms  of  the  agree- 
ment.    As  performance  may  be  termed  the  normal  way  of  dis- 
charging the  contract,  the  leading  question  merely  is:   "  Have  the 
terms  been  substantially  complied  with?  "     The  issue  of  substan- 
tial  performance   is   somewhat   involved   with    "  severable "    or 
"  separable  "  contracts,  with  recovery  upon  a  "  quantum  meruit," 
and  also  with  what  is  meant  by  "  specific  performance/'  and  what 
happens  if  it  turns  out  to  be  a  case  of  "  impossible  performance." 
It  will  be  in  order,  therefore,  to  correlate  in  sequence  these  varying' 
aspects  of  "  performance." 

95.  Specific  Performance.  —  It  is  historically  true  that  the 
doctrines  of  equitable  jurisprudence  grew  up  in  the  attempt  to 
soften  the  harshness  and  asperities  of  the  common  law;    for  the 
latter  was  generally  unyielding,  severe,  and  made  no  allowance 
for  the  particular  mitigating  circumstances  of  a  given  case.     And 
it  is  probably  true  that  many  times  strict  moral  justice  does  mis- 
carry through  the  operation  of  the  common  law.     The  more 

74 


CONTRACT   PRINCIPLES  §  96  A 

flexible  equity  system,  often  relying  more  upon  the  abstract 
principles  of  equity  and  following  the  dictates  of  "  good  con- 
science," would  perhaps  have  produced  quite  different  results. 
The  historical  development  of  the  two  parallel  branches  of  juris- 
prudence known  as  "  law  "  and  "  equity  "  need  not  now  concern 
us,  nor  is  it  to  be  understood  that  whenever  there  is  a  particular 
hardship  in  law  relative  to  the  enforcement  of  contracts,  for 
example,  that  equity  will  step  in  to  relieve  it.  In  fact,  though 
law  and  equity  exist  concurrently,  each  occupies  a  fairly  definite 
field,  and  in  only  a  few  instances  do  they  overlap.  The  principles 
of  equity  jurisprudence  are  often  simply  stated  in  the  form  of 
maxims  though  the  intricacies  to  be  followed  in  the  development 
of  these  maxims  are  far  from  simple,  and  will  not  be  ventured  upon 
here,  for  equity  -touches  engineering  contracts  but  rarely. 

96.  To  get  at  the  title  "  Specific  Performance  of  Contracts," 
however,  we  must  examine  that  maxim  which  most  defines  the 
outlines  of  equitable  powers,  viz.:  "  Equity  will  not  interfere  nor 
take  jurisdiction  where  there  is  an  adequate,  complete,  and  plain 
remedy  at  law."  Now  with  reference  to  contracts,  the  theory 
of  the  common  law  is,  "I  may  make  a  contract  but  I  don't  have 
to  carry  it  out,  since,  if  I  choose,  I  may  instead  pay  damages 
occasioned  by  my  failing  to  carry  it  out.?;  This  doctrine  is  well 
settled,  and  hence  leaves  it  optional  with  either  party  to  a  contract 
whether  he  will  carry  out  the  terms,  or  pay  damages  for  the 
breach  of  them. 

In  contradistinction  to  the  legal  theory  just  set  forth  stands 
the  equitable  one  of  specific  performance.  The  phrase  means 
the  right  to  have  the  agreement  carried  out  specifically,,  that  is, 
to  the  very  letter. 

Illustration:  Suppose  a  contractor  who  is  building  a  bridge  finds  himself 
losing  money,  and  decides  to  quit  work,  though  he  is  willing  to  pay  legal  dam- 
ages for  having  failed  to  perform.  If  specific  performance  could  be  invoked 
then  he  would  have  to  carry  out  the  exact  terms  of  the  contract,  and  no  excuse 
would  be  accepted.  It  is  probable,  however,  that  in  nearly  all  engineering 
contracts  a  court  of  equity  would  refuse  to  interfere,  but  would  say,  "  Damages 
will  make  you  whole,  that  is,  repair  all  your  losses.  Therefore  you  have  an 
adequate  and  complete  remedy  at  law,  and  specific  performance  will  not  be 
granted." 

98  A.  There  is,  however,  a  certain  type  of  contracts  (not  gen- 
erally met  in  engineering)  in  which  specific  performance  is  usually 
granted.  Instances  are  contracts  for  the  sale  of  land,  and  in 
respect  to  the  sale  of  rare  or  valuable  articles  which  are  unique 

75 


§  97  CONTRACTS 

and  cannot  be  otherwise  obtained,  and  in  certain  cases  where 
damages  are  of  doubtful  extent,  or  impossible  to  be  fully  ascer- 
tained. The  test  seems  to  be,  "  Was  the  act  to  be  done,  or  the 
thing  contracted  for  of  some  peculiar  and  extraordinary  value 
to  the  party  suing?"  If  it  was,  the  party  may  get  specific  per- 
formance, otherwise  not. 

Examples:  A  contract  for  the  sale  of  coal  tar  which  was  absolutely  neces- 
sary to  the  plaintiff's  business  was  ordered  to  be  specifically  performed  by 
the  court  of  equity,  because  the  defendant  had  a  local  monopoly  in  this  ma- 
terial. An  engineer  propounds  this  for  another  illustrative  question:  If 
the  owner  of  exclusive  rights,  such  as  Simplex  Piles,  Hydrex  Waterproofing, 
etc.,  refused  to  carry  out  his  agreement  to  use  and  apply  such  patented  article, 
could  specific  performance  be  claimed?  Or  would  damages  be  given  on  the 
ground  that  there  are  other  methods  of  pile  driving  or  waterproofing  which 
could  serve  as  well? 

97.  TENDER  OF  PERFORMANCE.— A  contract  will  some- 
times be  discharged  by  a  tender  of  performance.  By  this  is  meant 
the  formal  and  unconditional  offer  to  fulfill  his  obligation  made  by 
one  of  the  parties.  In  case  of  money  payments,  the  offer  must 
be  absolute  and  unfettered  by  any  conditions,  as  for  example,  the 
party  paying  cannot  demand  a  discharge  (though  it  would  seem 
that  he  should  be  en  titled*,  to  at  least  a  receipt),  and  the  tender 
must  be  of  the  entire  amount  due.  (5  Mass.  365.)  When  there 
are  concurrent  acts  to  be  performed  neither  party  can  charge  the 
other  with  a  breach  of  the  terms  without  having  tendered  per- 
formance himself,  and  then  showing  that  the  other  party  prevented 
him  from  performing,  or  else  expressly  waived  his  rights.  (55 
N.  Y.  480.)  This  may  happen  in  engineering  contracts  where  the 
owner  prevents  the  contractor  from  doing  the  work,  as  by  his 
failure  to  secure  possession  of  the  site  which  the  contractor  must 
occupy,  or  getting  necessary  building  permits,  etc.,  etc.  The 
effect  is  to  release  the  contractor  and  to  render  the  owner  liable 
in  a  suit  for  damages. 

98.  Impossible    Performance.  —  As    considerable    discussion 
has  already  been  given  this  topic  in  connection  with  "  Impossible 
Consideration,"  the  student  or  reader  is  referred  to  §§  45-6-7, 
which  should  be  read  again  in  this  connection. 

99.  SUBSTANTIAL  PERFORMANCE.  —  The  phrase  "  sub- 
stantial performance  "  raises  an  issue  at  times  of   considerable 
difficulty,  involved  in  determining  the  rights  of  the  parties  under 
a  contract  for  building  something.     The  student  is  cautioned  at 
the  outset  that  the  phrase  has  a  distinct  technical  meaning  supple- 

76 


CONTRACT    PRINCIPLES  §  100 

mental  to  the  ordinary  significance  of  the  words.  We  shall  now 
attempt  to  define  the  technical  meaning,  though  the  fad  of  sub- 
stantial performance  is  always  established  by  a  construction  which 
the  Court  judicially  places  upon  the  contractor's  acts  after  weigh- 
ing all  the  evidence  surrounding  them.  It  may  well  be  mentioned 
here  that  "  substantial  performance  "  is  a  doctrine  borrowed  from 
equity,  designed  to  render  fraud  or  unjust  enrichment  more 
difficult. 

Most  engineering  contracts  embrace  several  distinct  stages 
or  parts  of  erection,  and  the  question  arises  whether  in  fact  all 
their  terms  have  been  fully  carried  out.  Logically,  the  situation  is 
simple  enough,  for  the  contract  is  either  performed,  and  the 
contractor  entitled  to  his  pay;  or  it  is  not  performed  and  he  is  not 
entitled  to  it.  Yet  in  a  large  number  of  cases  a  rigid  adherence 
to  this  rule  would  inflict  great  injustice.  For  example,  if  the 
contractor  has  acted  honestly,  really  intending  to  do  his  work 
completely  and  properly,  but  has  failed  in  some  comparatively 
unimportant  particulars,  the  owner  should  not  be  allowed  to 
receive  the  benefits  of  practical  completion  without  paying  a  fair 
compensation  for  the  part  done.  The  owner  should,  however, 
be  allowed  to  deduct  suitable  credit  for  the  incompleted  part,  or 
for  the  loss  or  inconvenience  suffered  on  account  of  it. 

100.  The  key  to  the  situation,  therefore,  lies  in  deciding  upon 
the  relative  importance  of  the  parts  done  and  undone.  While 
any  fair-minded  person  ought  to  be  able  to  settle  with  consider- 
able accuracy  whether  or  not  the  contract  has  been  substantially 
performed,  yet  as  the  question  is  often  of  vital  importance  to  one 
of  the  parties,  it  may  require  the  combined  acumen  of  judge,  jury, 
and  counsel  to  answer  the  question. 

Let  us  suppose  a  case  where  the  contractor  admits  he  has  not 
fully  performed,  and  possibly  he  does  not  even  claim  substantial 
performance,  yet  his  work  is  of  great  benefit  to  the  owner;  can 
the  contractor  recoup  himself  for  the  detriment  he  has  suffered, 
i.e.,  the  expense  he  has  been  put  to?  Yes,  here  again,  the  law  will 
imply  another  contract  to  take  the  place  of  the  one  admittedly 
broken,  by  means  of  which  he  can  recover  the  amount  the  work 
has  actually  cost  him  upon  proving  satisfactorily  to  the  court 
what  that  amount  is.  In  legal  terminology,  he  is  said  to  have 
recovered  upon  a  quantum  meruit,  which  is  quaintly  interpreted 
to  mean  "  as  much  as  the  party  deserved."  (173  Mass.  1.) 

77 


§  101  CONTRACTS 

In  a  case  such  as  we  have  just  been  discussing,  it  appears  that  the  con- 
tractor can  do  either  of  two  things,  according  to  the  situation  he  must  face. 
If  he  took  the  contract  too  low,  is  losing  money,  and  is  in  some  way  pre- 
vented from  completing  a  sufficient  amount  of  the  work  to  fairly  raise  the 
question  of  substantial  performance,  he  will  be  wise  to  waive  the  original  con- 
tract and  to  sue  on  quantum  meruit,  provided  he  feels  confident  that  there  is 
satisfactory  proof  of  what  the  work  has  really  cost  him.  But  on  the  other 
hand,  if  the  contract  was  favorable  to  him,  he  will  then  be  better  off  financially 
to  claim  substantial  performance,  though  he  must,  of  course,  stand  ready  to 
deduct  the  value  of  that  part  admittedly  not  done  from  the  total  sum. 

As  said  before,  the  doctrine  of  substantial  performance  is  an 
equitable  one,  and  includes  compensation  (to  the  owner)  for  all 
defects  which  are  not  so  slight  and  insignificant  as  to  be  safely 
overlooked.  (163  N.  Y.  220.) 

101.  SEVERABLE    CONTRACTS.  —  The  issue    of    "sub- 
stantial performance  "  requires  us  to  consider  for  a  moment  the 
status  of  "  severable  "  or  "  separable  "  contracts.    Some  contracts 
from  the  nature  of  their  subject  matter  very  easily  allow  the 
question  to  be  fairly  asked  whether,  though  a  unit  in  general 
appearance,  they  are  still  not  capable  of  separation  into  several 
constituent  parts. 

Suppose,  for  example,  that  having  considerable  money  which  I  wish  to 

Eut  into  real  estate,  I  contract  with  X,  a  builder,  for  him  to  build  me  three 
ouses  at  $5000  each.  Suppose,  however,  that  after  one  is  completed  I 
decide  that  I  am  not  fully  satisfied  with  his  work,  and  refuse  to  allow  him  to 
begin  the  others,  but  tender  him  the  $5000  due  on  the  first  house.  Can  he 
refuse  to  accept  it,  and  hold  me  to  the  agreement  by  which  he  was  to  build 
all  three?  If  the  contract  is  divisible,  in  fact,  then  the  consideration  is  also 
divisible,  and  I  am  acting  within  my  rights. 

It  seems  probable  that  in  such  a  case  the  contract  would  be 
admitted  to  be  separable  in  its  essence,  but  the  student  is  warned 
that  there  is  a  considerable  diversity  of  opinion  among  the  Courts 
upon  this  point,  a  type  of  contract  by  one  held  to  be  entire  may 
by  another  be  held  separable  and  divisible.  Thus  it  is  ordinarily 
held  that  a  building  contract  (for  a  single  building)  is  entire  and 
not  severable.  The  contractor  undertakes  the  work  as  one  and 
not  several  jobs,  even  though  there  are  several  distinct  stages  to 
the  work.  The  point  is  that  until  he  can  show  completion  of  the 
work  he  cannot  demand  payment  of  the  contract  price.  But,  of 
course,  the  contract  may  be  so  worded  that  there  are  in  reality 
distinct  and  separate  pieces  of  work,  with  separate  considerations 
therefor,  but  substantial  performance  is  a  condition  precedent  to 
the  contractor's  right  to  recover. 

102.  It  has  been  stated  by  high  authority  that  "  the  equitable 

78 


CONTRACT    PRINCIPLES  0$ 

doctrine  of  substantial  performance  is  intended  for  the  protection 
and  relief  of  those  who  have  honestly  and  faithfully  endeavored 
to  perform  their  contracts  in  all  material  particulars,  so  that  their 
right  to  compensation  may  not  be  forfeited  by  reason  of  mere 
technical,  inadvertent,  or  unimportant  omissions  or  defects.  It 
is  incumbent  upon  him  who  invokes  this  doctrine,  therefore,  to 
present  a  case  where  there  has  been  no  wilful  omission  or  depar- 
ture from  the  terms  of  the  contract."  (123  Pa.  19.) 

103.  Summary  of  "  Performance."  —  If  a  contract  is  fully 
performed,  then,  as  its  object  has  been  attained,  the  contractual 
rights  are  discharged  and  the  contract  passes  out  of  existence. 
This  may  be  termed  the  normal  and  foremost  mode  of  discharge. 
Suppose,  however,  one  of  the  parties  is  wholly  unwilling  to  carry 
out  his  agreement.     In  a  limited  class  of  cases,  "  specific  perform- 
ance "  will  be  enforced  by  a  court  of  equity,  when,  the  perform- 
ance having  been  obtained,  the  contract  is  discharged  as  before. 

Let  us  next  suppose  that  events  have  arisen  subsequent  to 
making  the  contract  which  "make  performance  a  physical  impos- 
sibility. If  the  events  fall  within  the  category  covered  by  "  failure 
of  consideration  "  there  is  no  discharge  because  there  never  was 
a  contract.  But  we  have  seen  that  if  the  thing  to  be  done  sub- 
sequently becomes  extremely  difficult,  i.e.,  only  "  next  to  im- 
possible," and  if  the  contract  is  unconditional  in  its  terms,  then 
it  is  not  discharged  until  either  the  thing  is  done  or  damages  paid 
for  the  injury  or  loss  suffered  by  reason  of  its  not  being  done. 
Thus  under  certain  conditions  impossibility  of  performance  is  a 
sufficient  excuse,  the  contract  is  discharged,  and  the  right  to 
damages  does  not  accrue. 

104.  The  issue  of  "  substantial  performance  "  arises  when  one 
party  claims  he  has  performed  with  "  practical  "  completeness, 
and  that  he  is  therefore  entitled  to  receive  pay,  if  not  for  the  whole 
job,  at  least  for  the  part  which  he  has  done,  and  that  this  should 
be  at  the  contract-rate  of  pay.     The  other  party  is  contending 
that  as  the  contract  is  not  severable  into  parts,  it  has  not  been 
fully  performed,  and  therefore  no  pay  should  be  given  until  the 
whole  is  completed.     If  the  court  finds  the  equitable  doctrine 
of  "  substantial  performance  "  applicable  and  so  awards  its  judg- 
ment, then  the  contract  is  discharged.     But  if  the  court  does  not 
find  that  the  terms  of  the  express  contract  have  been  sufficiently 
complied  with  to  warrant  such  an  award  (to  receive  which  would 

79 


§  105  CONTRACTS 

imply  a  payment  of  substantially  the  whole  of  the  contract  price), 
it  may  still  prevent  the  other  party  from  being  unjustly  enriched 
at  the  contractor's  expense  by  declaring  that  there  is  an  implied 
contract,  and  thus  allowing  recovery  upon  a  quantum  meruit. 
In  either  of  the  last-mentioned  cases  recovery  by  the  contractor 
discharges  the  contract  and  precludes  further  action  under  it. 

105.  DISCHARGE  BY  AGREEMENT.  —  While  the  con- 
tract is  still  unperformed,  either  wholly  or  in  part,  it  may  be  dis- 
charged by  agreement  and  abandoned,  since  the  parties  have,  in 
general,  the  same  right  to  unmake  that  they  had  to  make  the  con- 
tract.    Such  an  agreement  may  be  witnessed  by  acts  as  well  as  by 
words.    But  there  must  be  a  real  meeting  of  the  minds  for  this  also, 
and  if  there  has  been  partial  performance,  and  the  contractor  has 
expended  a  considerable  sum  of  money,  there  must  be  a  substantial 
consideration  for  his  agreement  to  waive  his  rights  under  the  con- 
tract; for  otherwise,  the  contract  is  still  in  full  force  and  binding 
upon  the  other  party.    It  is  to  be  noticed,  too,  that  if  some  outside 
party  becomes  involved  in  the  contract,  by  reason  of  which  his 
rights  would  be  greatly  prejudiced  by  an  agreement  to  terminate 
between  the  original  parties,  then  they  may  not  be  able  so  to  termi- 
nate.    Generally,  where  one  party  chooses  to  renounce  a  contract, 
the  other  party  may  agree  thereto  and  waive  his  rights,  as  already 
stated,  or  he  may  elect  to  keep  the  contract  in  force,  and  to  hold 
the  other  party  to  his  obligation.     Then,  even  though  he  may 
not   be  able  to   make  the   other  party   perform,  he  may  yet 
get  damages  by  reason  of  the  failure  to  perform. 

106.  In  accord  with  the  above  statement  that  the  parties 
can  unmake  as  well  as  make  their  contracts,  it  is  obvious  that 
they  may  qualify  or  modify  the  terms  of  the  old  agreement,  or 
substitute  another  therefor.     The  new  one  may  express  or  imply 
an  annulment  of  the  old  by  exhibiting  terms  plainly  inconsistent 
with  it.    And  of  course,  if  the  parties  agree  upon  it  in  advance, 
there  may  be  a  special  provision  in  the  contract  providing  a  mode 
of  alteration,  modification,  or  for  its  own  discharge.     For  instance, 
they  may  state  that  unless  such  and  such  a  condition  precedent  is 
brought  to  pass,  or  upon  the  happening  of  a  certain  event  —  a 
"condition  subsequent"  (see  §§71-3),  or  at  the  option  of  the 
other  party,  to  be  manifested  in  a  particular  way,  etc.,  then  and 
thereupon,  the  contract  shall  terminate,  be  null  and  void  and  of 
no  effect. 

80 


CONTRACT   PRINCIPLES  §  108 

Such  provisions  are  termed  "  cancellation  and  abrogation  " 
clauses,  because  they  provide  a  way  of  discharging  the  contract 
other  than  by  performance.  Familiar  instances  are:  Insertion 
of  "  strike  clauses,"  in  contracts  to  furnish  materials;  providing 
that  the  contractor  shall  not  be  liable  as  upon  a  breach,  in  case 
of  delay  by  a  common  carrier  when  the  other  terms  make  "  time 
of  the  essence  "  of  the  contract;  etc. 

107.  Our  title  seems  also  to  include  Discharge  by  Waiver. 
The  word  "  waive  "  is  defined  as  meaning  to  relinquish  or  to 
abandon  one's  rights  or  claims.     It  is  apparent,  therefore,  if  the 
parties  mutually  waive  their  rights,  then  the  contract  is  dis- 
charged; but  let  it  be  distinctly  noted  that  one  cannot  "  waive  " 
his  duties  or  responsibilities.     As  previously  said,  to  annul  or 
abandon  a  contract  requires  the  same  consent  as  did  the  mak- 
ing of  it,  and  there  must  be  a  real  meeting  of  the  minds.     (115 
U.  S.  29.)     A  written  contract  not  yet  performed  may  be  re- 
scinded or  abandoned  by  parol  (i.e.,  orally) ;   and  also  the  agree- 
ment to  rescind  may  be  inferred  from  the  acts  and  declarations  of 
the  parties,  but  such  acts  must  be  clear  and  unequivocal.     (94 
Mo.  388.) 

In  this  connection  Mr.  Wait  points  out  that  it  will  be  necessary 
for  the  engineer  to  guard  his  acts  carefully  when  directing  con- 
struction work  done  under  contract,  lest,  as*  the  agent  of  the 
owner,  he  unintentionally  "  waives  "  his  employer's  rights.  If 
such  waiver  occurs  the  result  may  be  that  the  "  independent 
contractor  "  (see  §  172)  status  may  be  set  aside,  and  that  of 
".master  and  servant  "  substituted.  The  importance  of  this  dis- 
tinction will  be  more  fully  developed  in  the  next  chapter. 

The  mutual  agreements  to  rescind  and  waive  respective 
rights  are  held  to  be  a  sufficient  consideration  to  support  the  new 
bargain,  i.e.,  the  agreement  to  release  one  another.  Summarizing, 
fit  may  be  said  that  when  the  parties  agree  to  rescind  and  to  give 
up  the  rights  which  the  contract  confers  upon  them,  the  contract 
is  "  discharged  by  waiver." 

108.  Accord  and  Satisfaction.  —  When  the  parties  stand  in 
the  position  of  debtor  and  creditor,  a  contract  is  sometimes  dis- 
charged by  "  accord  and  satisfaction,"  meaning  that  the  creditor 
agrees  to  accept  some  other  thing  in  lieu  of  that  which  is  con- 
tracted for.     The  agreement  upon  which  the  one  party  is  to  be 
satisfied  is  called  an  "  accord,"  and  when  the  thing  promised  has 

81 


§  109  CONTRACTS 

been  performed  or  paid,  the  whole  transaction  constitutes  an 
"  accord  and  satisfaction."  Space  does  not  permit  considering 
this  matter  fully  here,  but  it  should  be  noted  that  an  agreement 
to  accept  less  than  the  whole  sum  which  is  due  as  a  debt  cannot 
be  made  an  accord  for  the  whole  amount.  (27  Me.  362.)  The 
student  will  recognize  that  this  sort  of  a  case  has  already  been 
treated  under  "  Consideration,"  and  that  the  present  difficulty 
is,  as  was  stated  there,  one  sum  of  money  cannot  at  the  same 
moment  be  a  consideration  for  two  different  contracts. 

But  the  rule  just  stated  does  not  apply  where  the  amount  of 
the  claim  is  unliquidated  and  payment  is  made  by  way  of  com- 
promise or  settlement.  Nor  does  it  apply  where  a  number  of 
creditors  make  a  "  composition  "  agreement  with  their  debtor,  if 
he  carries  said  agreement  into  effect.  (142  N.  Y.  404.) 

109.  ALTERATIONS.  —  In  discussing  engineering  contracts 
the  subject  of  "  alterations  "  is  a  highly  important  matter,  since 
changes  in  both  plans  and  specifications  are  not  uncommon.     The 
obviously  practical  way  of  dealing  with  "  alterations  "  is  to  make 
suitable  provisions  for  change  in  the  contract  itself,  and  then  to 
comply  with  them  strictly  when  changes  become  necessary.     If 
approached  in  this  way  it  is  held  that  changes  in  the  contract  will 
not  operate  to  annul  the  original  agreement,  unless  such  was  the 
plain  intention  of  the  parties.     If  changes  of  any  importance  are 
made  on  the  original  document,  it  should  be  re-dated  and  re- 
executed  (i.e.,  signed  by  both  parties),  with  careful  reference  made 
to  the  changes.     (See  §  112,  also.) 

110.  Question  of  Consideration.  —  It  has   been   repeatedly 
stated  that  a  contract  is  to  be  taken  as  stating  the  intention  of  the 
parties.    Conversely,  so  long  as  their  intentions  are  lawful  the 
parties  are  at  liberty  to  express  them  in  the  contract,  and  such 
intentions  can  be  enforced.    Accordingly,  it  has  been  held  that  the 
parties  may  properly  provide  in  the  contract  that  changes  in  the 
materials  or  methods  shall  be  allowed   "  without  further  con- 
sideration." 

There  seems  to  be  no  injustice  in  this,  and  upon  giving  a  little  thought 
the  student  will  see  that  this  rule  is  not  incompatible  with  the  argument  pre- 
viously given  (see  §  39)  to  the  effect  that  it  is  impossible  for  the  same  con- 
sideration to  serve  as  the  basis  of  two  independent  contracts.  In  the  former 
case  the  situation  was  that  the  contractor  was  attempting  to  force  the  situa- 
tion against  the  will  of  the  owner  after  the  contract  was  made.  In  the  present 
case,  the  parties  by  mutual  consent  before  entering  into  the  bargain  agree 
and  specify  that  under  certain  conditions  contemplated  in  advance,  a  change, 

82 


CONTRACT    PRINCIPLES  §  112 

i.e.,  a  new  promise,  may  be  made.  And  at  the  same  time  they  further  agree 
that  the  original  consideration  shall  serve  in  the  second  agreement  also.  It  is 
hoped  that  the  distinction  will  be  apparent. 

As  a  corollary  to  this  principle,  it  is  just  and  reasonable, 
therefore,  that  changes  so  made  must  be  in  harmony  with  the  true 
intention  of  the  parties,  and  that  inconsistent  changes,  or  such 
ones  as  would  work  great  hardship  or  injustice  on  either  party, 
will  not  be  allowed. 

111.  Let  us  next  suppose  a  case  where  the  language  used  in 
the  contract  does  not  sufficiently  express  or  imply  the  waiver  of 
a  new  consideration,  in  case  changes  or  alterations  are  subse- 
quently made.     In  brief,  the  situation  is  that  though  the  con- 
tractor may  promise  to  make  changes,  as,  for  example,  do  more 
costly  or  a  higher  grade  of  work,  yet  a  breach  of  this  promise 
cannot  be  made  the  cause  of  a  suit  for  damages  unless  there  is  a 
sufficient  new  consideration. 

This  new  consideration  may  consist  of  the  addition  or  deduc- 
tion of  a  certain  sum  from  the  stipulated  price,  according  as  the 
change  called  for  a  greater  or  less  amount  of  work.  If  no  such 
consideration  exists,  then  the  party  to  be  bound  is  at  liberty  to 
change  his  mind. 

112.  Discharge    by    Alteration.  —  The    foregoing    discussion 
has  point  because  of  the  general  principle  that  a  material  alteration 
of  a  contract  operates  as  a  discharge.     In  this  connection  the 
difference  between  an  alteration  and  a  true  supplemental  contract 
may  need  to  be  observed.     If  extensive  additions  are  made  to 
the  contract  they  may  well  be  called  a  supplementary  agreement, 
but  if  nothing  is  added  and  one  provision  merely  supersedes 
another,  it  would  probably  be  deemed  an  alteration.    The  necessity 
of  a  new  consideration  to  support  a  new  promise  (if  it  is  really  a 
supplemental  contract)  has  been  already  shown.     (See  §  39.) 

Sealed  Instruments.  —  The  question  of  discharge  now  under 
discussion  is  somewhat  involved  with  the  technical  rules  regard- 
ing seals.  It  is  said  that  a  written  contract  not  required  by  law 
to  be  under  seal  may  be  modified  or  altered  by  either  oral  or 
written  agreement;  that  is,  the  seal  is  superfluous  in  such  a  case. 
But  where  the  seal  is  required  by  law,  the  alterations  must  also 
be  under  seal.  \Yith  reference  to  engineering  contracts,  it  is 
probably  a  general  rule  to  make  them  under  seal  whether  or  not 
required  by  law  at  the  place  of  their  formation.  The  old  theory 

83 


§  113  CONTRACTS 

of  the  law  with  respect  to  the  relation  between  a  seal  and  con- 
sideration has  been  already  alluded  to  (§  49),  and  need  not  be 
further  treated  here  save  to  say  again  chat  the  ancient  distinc- 
tion between  sealed  and  unsealed  instruments  has  been  largely 
abolished. 

113.  SUPPLEMENTAL  CONTRACTS.—  In  connection  with 
"  Alterations,"  Mr.  Wait  offers  a  very  helpful  suggestion  to  the 
effect  that  it  is  good  practice  when  material  alterations  or  additions 
to  a  contract  are  to  be  made,  or  serious  omissions  are  to  be  supplied, 
that  these  should  be  plainly  treated  in  a  supplemental  contract 
formally  executed  by  the  parties.     The  effect  upon  the  original 
contract  will  then  be  clear  and  unmistakable.     To  the  same  end, 
though  securing  it  in  a  less  formal  manner,  are  the  provisions 
frequently  used  in  engineering  contracts,  to  the  effect  that  no 
claims  for  "  extras  "  shall  be  made  or  considered  unless  they  have 
been  authorized  and  directed  in  writing  by  the  engineer,  etc. 

Another  way  of  working  out  the  same  result  is  to  consider  that 
the  said  writing  constitutes  a  very  practical  "  construing  "  which 
the  parties  have  themselves  put  upon  the  contract.  The  courts 
will  be  bound  to  give  such  weight  to  the  interpretation  so  made 
as  will  make  it  an  integral  part  of  the  original  contract.  And 
this  is  all  that  is  sought  for  in  any  event. 

114.  "  EXTRAS."  —  As  a  phase  of  "  Alterations  "  the  topic 
of  "  extras  "  merits  careful  study  and  painstaking  attention  from 
every  engineer  concerned  with  contract  work,  whether  in  drafting 
the  instrument  or  erecting  the  structure.    Mr.  Wait  well  says, 
"  Extras  are  the  contractor's  aim  and  the  owner's  fear."     The 
term  is  used  to  mean  additional  work  which  was  not  foreseen  or 
contemplated  when  the  contract  was  executed,  or  which  though 
highly  necessary  to  the  main  scheme  of  construction  was  over- 
looked and  not  provided  for  in  drafting  the  contract. 

115.  When  the  need  for  extra  work  arises,  in  the  majority 
of  cases  the  contractor  will  be  the  only  person  in  position  to  per- 
form it,  either  because  he  is  so  occupying  the  site  as  to  prevent 
another  contractor  from  working  —  if  another  were  available  — 
or  else  because  there  is  in  fact  no  other  one  within  reach  of  the 
owner,  etc.     The  effect  is  that  the  contractor  controls  the  situa- 
tion because  the  extra  work  must  be  done,  and  he  is  the  only  one 
who  can  possibly  do  it,  —  therefore  he  sets  his  own  price  upon 
his  labor.    That  it  is  often  exorbitant  to  the  last  degree  is  an 

84 


CONTRACT   PRINCIPLES  §  117 

undoubted  fact  which  illustrates  a  common  attribute  of  human 
nature.  Indeed,  it  is  credibly  stated  that  many  contractors  com- 
pete sharply  for  work,  bidding  only  the  real  cost,  anticipating  that 
the  extras  at  handsome  prices  will  afford  them  a  good  profit  on 
the  whole  job.  For  this  reason  it  is  common  to  find  the  most 
drastic  provisions  inserted  in  the  contract  looking  to  the  avoidance 
of  extras.  It  seems  only  common  fairness,  however,  to  provide 
and  to  insist  that  extras  must  be  ordered  in  writing,  and  that  a 
monthly  account  and  claim  for  the  same  must  be  turned  in,  etc. 

116.  It  is  ordinarily  provided  that  all  the  work  shall  be  erected 
in  accordance  with  the  contract  drawings  and  specifications,  and 
also  in  accordance  with  such  further  drawings,  details,  instructions, 
directions  and  explanations  as  may  from  time  to  time  be  ordered 
by  the  engineer.     It  will  be  seen  at  once  that  these  provisions 
are  usually  necessary,  since  it  cannot  possibly  be  told  in  advance 
just  what  details  will  need  elaboration  and  further  explanation, 
even  if  it  is  true  that  the  major  details  are  wholly  formulated  on 
the  contract  plans,  —  which  is  frequently  not  the  case. 

Upon  receiving  these  additional  plans  or  instructions  the  con- 
tractor may  fairly  and  in  good  faith  ask  if  the  required  work  is  not 
plainly  in  excess  of  that  first  contemplated.  It  is  also  apparent 
that  even  with  abundant  good  faith  on  both  sides  there  may  yet 
be  honest  differences  of  opinion.  To  make  the  engineer  sole  referee 
in  such  a  case,  with. power  to  decide  arbitrarily  and  summarily 
as  to  what  constitutes  an  "  extra  "  is  to  invite  friction.  But  if 
it  is  provided  that  upon  receiving  such  further  plans  and  descrip- 
tions the  contractor  is  of  opinion  that  they  are  extras,  and  that 
he  shall  before  proceeding  with  such  work  give  the  engineer  notice 
in  writing  to  this  effect,  and  upon  being  requested  to  proceed 
by  the  engineer  shall  do  so,  if  then  they  fail  of  an  agreement  as  to 
whether  it  is  extra  work,  recourse  shall  be  had  to  arbitration,  and 
such  a  plan  it  seems,  might  be  a  preventive  of  trouble.  This 
suggestion  is  taken  from  the  best  English  practice.  (Bamford, 
Proc.  Am.  Soc.  C.  E.  XXXV,  1328.) 

117.  Argument  for  Definiteness.  —  What  has  been  said  here- 
tofore gives  point  to  the  statement  that  engineering  specifications 
should  state  with  all  possible  exactness  and  detail  the  precise 
limitations  of  the  work  to  be  done,  as  for  example,  what  depth  of 
foundations  is  really  in  contemplation;   what  the  minimum  out- 
put of  power  for  an  electrical  machine  must  be,  etc.,  etc.    When 

85 


§  118  CONTRACTS 

the  work  is  carefully  delimited  there  can  be  no  reasonable  question 
as  to  what  is  covered  by  the  contract,  and,  therefore,  what  may 
justly  be  claimed  to  be  extras.  Failure  to  do  this  causes  endless 
controversies  between  owner  and  contractor  as  to  what  is  or  is 
not  additional  work,  since  the  natural  tendency  of  the  contractor 
to  pare  down  the  scope  of  the  original  contract  may  always 
be  noted. 

118.  Mr.  Wait  observes  that  extra  work  is  one  of  the  chief 
sources    of   litigation    between    owners    and    contractors.     It    is 
usually  because  the  work  to  be  done  was  not  properly  described; 
or  it  may  happen  through  the  pride  of  the  designer  or  engineer 
who  is  not  willing  to  admit  that  he  overlooked  the  cost  of  certain 
important  items  of  labor  or  materials  required;   or  because  mis- 
takes were  made  in  alignment  or  grade  in  staking  out  the  work; 
or  an  inspector  erred  in  his  judgment,  etc.,  etc. 

Since  the  engineer  should  be  actuated  by  at  least  an  ordinary 
sense  of  decency  and  justice  toward  the  contractor  who  may 
undertake  the  work,  Mr.  Wait  recommends  that  provisions  for 
extra  or  additional  work  should  be  drawn  with  extreme  care,  and 
only  after  the  specifications  have  been  prepared,  revised,  and 
reviewed,  and  after  the  engineer  is  satisfied  that  he  has  fully 
described  all  the  work  contemplated  by  the  contract. 

119.  Practical  Suggestions  on  Extras  and  Payments.  —  The 
following  is  a  satisfactory  way  of  providing  for  extras,  and  for  their 
payments  —  matters    which    easily    assume    such    troublesome 
proportions  in  lump-sum  contracts : 

"  The  contractor,  when  authorized  by  the  engineer,  shall  vary  by  alter- 
ing, adding  to,  or  deducting  from  the  contract  requirements.  Such  authoriza- 
tion is  to  be  sufficiently  proven  by  any  writing  or  drawing  signed  by  the 
engineer,  or  by  any  subsequent  written  approval  of  work  by  him,  but  no 
variation  shall  be  made  without  such  authorization,  nor  will  compensation 
be  allowed  unless  in  accordance  with  such  authorization."  (Bamford,  Proc. 
Am.  Soc.  C.  E.  XXXV,  p.  1334.) 

120.  As  the  price  to  be  paid  for  such  extras  is  a  highly  impor- 
tant matter,  an  arrangement  for  its  determination  may  be  made 
in  any  one  of  four  different  ways : 

A.  —  Price  of  extras  to  be  fixed  by  estimate  and  acceptance  of 
a  Lump  Sum,  and  in  case  an  agreement  upon  the  amount  due  can- 
not be  reached  by  the  engineer  and  contractor  then  recourse  is 
to  be  had  to  arbitration.  (The  student  will  see  that  this  is  a 
supplemental  contract,  see  §  113.) 


CONTKACT   PRINCIPLES  §  122 

The  operation  of  this  scheme  will  be  facilitated  if  the  owner  pays  a  sum 
which  he  concedes  to  be  a  fair  price  as  the  work  progresses,  and  which  it  is 
agreed  the  contractor  may  accept  without  waiving  his  rights  to  the  full  price, 
thus  leaving  only  the  difference,  or  balance,  to  be  adjusted  by  arbitration. 

B.  —  Price  of  extras  to  be  determined  by  Unit  Prices,  agreed 
upon  when  the  extra  work  is  undertaken. 

This  plan  would  appear  to  be  unnecessary  of  'adoption  unless  the  extras 
were  of  a  different  class  of  work  than  was  covered  by  the  original  contract,  or 
unless  the  contract  was  to  do  a  perfectly  definite  amount  of  work  at  the  first- 
named  unit  prices,  when,  of  course,  the  parties  might  make  a  new  agreement 
for  any  new  work  (even  of  the  same  sort)  in  excess  of  the  original  amount.  In 
such  a  case,  the  right  to  have  arbitration  of  unsettled  points  might  still  be 
retained. 

C.  —  Price  of  extras  to  be  fixed  by  Net  Cost  plus  Percentage. 

In  this  case  it  is  well  to  specify  just  what  items  shall  be  counted  in  and 
what  omitted  in  determining  the  net  cost,  else  it  is  easy  to  foresee  difficulty 
ahead.  Proof  may  be  required  that  the  work  cost  more  than  the  usual  prices 
for  such  work,  etc.  And  finally,  this  plan  requires  that  it  shall  be  carefully 
stated  just  what  percentage  of  the  total  net  cost  shall  be  allowed  the  con- 
tractor as  his  profit. 

D.  —  Price  of  extras  fixed  by  Cost  plus  a  Lump  Sum. 

Here  a  bonus  may  be  introduced  if  the  cost  falls  below  a  certain  sum; 
otherwise  there  is  no  particular  inducement  to  the  contractor  to  keep  costs  as 
low  as  possible.  The  manner  of  determining  the  costs  would,  of  course,  have 
to  be  regulated  as  before,  under  C. 

121.  DISCHARGE  BY  PAYMENT.  — In  a  sense  parallel 
with  discharge  by  performance,  is  discharge  by  payment  of  the 
amount  agreed  upon  in  the  contract.     That  this  does  discharge 
the  contract  is  almost  too  obvious  to  need  comment  here.    It  may 
be  noted,  however,  that  the  payment  maybe  a  true  performance,  as 
being  the  identical  thing  contemplated  by  the  contract;   or  pay- 
ment may  indirectly  result  in  performance,  as  where  it  is  accepted 
as  a  substitute  for  performance,  as,  for  example,  being  accepted 
in  satisfaction  of  a  breach  of  the  contract.     What  will  in  fact  con- 
stitute a  payment,  as,  for  instance,  whether  the  acceptance  of  a 
promissory  note  is  payment  or  not,  is  a  development  of  the  law 
of  Negotiable  Instruments,   not  desirable  to  be  made  at  this- 
point. 

122.  BREACH  IN  GENERAL.  —  That  a  person  who  fails 
to  carry  out  the  terms  of  his  agreement  is  guilty  of  a  "  breach," 
and  that  the  other  party  thereby  becomes  entitled  to  a  suit  for 
damages  sustained  by  reason  of  the  breach,  is  common  knowledge. 
That  such  a  breach  may  or  may  not  discharge  the  contract,  is 

87 


§  123  CONTRACTS 

perhaps  not  so  well  known.     We  shall  be  repaid,  therefore,  for 
looking  into  this  matter  further. 
A  breach  occurs : 

(1)  When  a  party  renounces  his  liability  and  refuses  to  per- 
form; 

(2)  When  by  his  acts  he  renders  performance  impossible; 

(3)  When  he  merely  fails  to  perform  what  he  agreed  to  do. 

It  should  be  noted  here  that  if  the  injured  party  elects  not  to 
regard  the  happening  as  a  substantial  breach,  but  chooses  to  con- 
tinue the  contract  in  force,  then  there  is  no  discharge  arising  by 
the  mere  act,  or  failure  to  act,  of  which  the  other  party  has  been 
guilty.  There  are,  therefore,  two  question  presented:  (a)  What 
constitutes  failure  of  the  promisor  to  perform?  and  (6)  When 
does  it  discharge  the  promisee? 

123.  In  answer  to  question  (a)  only,  it  appears  that  there 
must  be  a  substantial  breach  of  a  vital  part  of  the  agreement, 
and  this,  it  will  be  seen,  depends  upon  the  true  interpretation  of 
the  contract  as  a  whole.*    As  previously  indicated,  the  parties 
can  make  any  lawful  intention  absolutely  essential,  even  if  the 
detail  dwelt  upon  and  magnified  is  apparently  a  minor  one;   for 
if  they  but  clearly  evidence  their  intention  by  the  language  used, 
the  courts  are  bound  to  give  it  effect,  since  it  is  not  their  function 
to  make  new  agreements  for  the  parties.     Our  question,  in  fact, 
develops  several  complexities,   which  cannot  be  pursued  here, 
such  as  introducing  the  distinction  between  "  entire  "  and  "  sepa- 
rable," or  "  severable,"  contracts,  and  becomes  involved  in  the 
question  of   "  substantial  "   performance,   wherein,   as  we  have 
seen,  a  failure  in  minor  details  does  not  discharge  the  contract. 

What  has  just  been  said  will  illustrate  once  more  the  need  for 
the  contract-writing  engineer  to  look  ahead,  to  study  and  think 
out  carefully  what  he  means  and  intends,  both  under  existing 
conditions  and  possible  future  ones,  and  then  to  express  the  whole 
situation  in  grammatical  and  rhetorical  form  which  is  unassailable, 

124.  Breach  by  Contractor's  Suspending  Work.  —  (See  Barn- 
ford,  Proc.  Am.  Soc.  C.  E.  XXXV.)     A  contingency  which  strikes 
at  the  very  root  of  the  construction  contract,  is  a  breach  arising 
through  a  suspension  of  work  by  the  contractor.     It  is,  perhaps, 
the  one  thing  above  all  others  which  the  owner  is  desirous  shall 

*  See  Appendix  Note  7.     "  Breach  by  Abandonment." 
88 


CONTRACT  PRINCIPLES  §  126 

not  happen.  Moreover,  a  suspension  will  ordinarily  only  happen 
in  the  event  of  serious  difficulties  arising,  and  the  interests  in- 
volved on  both  sides  are  usually  large  financially.  Hence  it  be- 
hooves the  contract-writer  to  introduce  only  thoroughly  well- 
considered  provisions  when  contemplating  the  event  of  a  possible 
suspension  of  the  work  by  the  contractor.  He  should  use  very 
especial  care  to  see  that  his  provisions  are  entirely  unambiguous, 
and  that  the  wording  is  free  from  uncertainties. 

125.  In  writing  the  contract,   therefore,  it  will  be  well  to 
define  first  what  degree  of  suspension  (e.g.,  for  a  certain  specified 
time)  is  allowable  and  excusable.     Then  the  engineer  should  be 
directed  to  give  suitable  notice  to  the  contractor  when  he  con- 
siders the  work  to  be  in  a  state  of  suspension,  calling  attention  to 
the  act  or  default  on  the  contractor's  part  upon  which  the  notice 
is  based.     It  is  then  proper  to  specify  just  what  the  contractor's 
rights  shall  be  in  regard  to  removing  any  of  his  plant  from  the 
site  after  the  notice  has  been  given. 

In  extensive  building  operations  it  seems  not  uncommon  to  provide  that 
the  owner  shall  have  a  lien  upon  the  plant  and  tools  for  the  next  thirty  days, 
unless  said  owner  within  that  time  enters  upon  and  takes  possession  of  the 
plant  with  a  view  to  continuing  the  work  upon  his  own  behalf,  charging 
the  cost  of  doing  the  same  against  any  moneys  which  may  still  be  due  the 
contractor  under  the  terms  of  the  original  agreement. 

126.  Following  this,  there  may  be  a  clause  dealing  with  the 
owner's  rights  when  he  enters  upon  the  site  for  the  purpose  of 
completing  the  work,  after  breach  by  suspension  on  the  part  of 
the  contractor.     The  student  will  probably  observe  that  if  the 
contractor  unjustifiably  suspends  work  this  amounts  to  a  sub- 
stantial breach  of  the  written  or  "  express  "  contract,  and  that 
save  in  so  far  as  he  can  recover  on  a  quantum  meruit  (roughly, 
an  implied  contract)  for  the  work  already  done,  he  need  not  be 
considered  as  to  the  balance  of  the  contract.     This  is  because  he 
has  broken  the  written  contract  in  a  substantial  way,  therefore 
it  is  discharged,  and  hence  as  no  contract  now  exists,  he  has  no 
rights  under  it.     Yet  even  though  the  real  kernel  of  the  matter 
may  be  stated  as  above,  trouble  may  be  avoided  by  stipulating 
in  advance  just  what  the  owner's  rights  shall  be  when  he  makes 
such  entry,  and  this  will  be  particularly  true  when  it  will  be  ad- 
vantageous (as  it  usually  is),  for  the  owner  to  make  use  of  some, 
at  least,  of  the  contractor's  plant.     It  is  usually  provided,  there- 
fore, that  all  materials  delivered  upon  the  site  which  are  intended 

89 


§  127  CONTRACTS 

for  the  work  shall  become  the  property  of  the  owner,  and  that  he 
shall  have  a  lien  upon  the  plant  until  the  work  is  completed.  Any 
other  persons  or  contractor  whom  the  owner  sees  fit  to  employ  to 
complete  the  work  may  be  put  into  posession  of  the  site  by  him, 
and  the  first  contractor  forthwith  excluded,  save  for  the  purpose 
of  measuring  the  work  previously  performed  by  him. 

127.  In  fairness  to  both  parties,  it  may  be  provided  that  if 
the  cost  of  completion  by  the  new  contractors  be  less  than  the 
original  contract  price,  then  the  balance  due  may  be  paid  to  the 
first  contractor,  but  that  if  the  cost  of  completion  should  prove 
greater  than  the  contract  price,  then  the  first  contractor  shall  be 
bound  to  pay  all  excess. 

The  above  suggestions  are  taken  from  the  best  English  practice.  Such 
provisions  do  not  offer  the  contractor  much  inducement  to  abandon  or  seri- 
ously suspend  the  work,  as  he  is  practically  bound  to  see  it  through  anyhow. 
The  advantage  is  that  by  such  provisions  the  owner  has  an  opportunity  to 
control  the  situation  more  thoroughly  if  he  has  to  deal  with  a  seriously  non- 
energetic  contractor.  (See  also  Appendix  Note  7.  "  Breach  by  Aban- 
donment.") 

128.  Remedies  for  Breach.  —  We  have  studied  at  some  length 
the  phases  of  discharge  by  breach,  and  the  practical  engineer  and 
student  may  now  naturally  ask,  "  But  if  the  contract  is  discharged, 
what  can  be  done  about  it  —  what  are  my  rights  in  such  a  case?  " 
It  is  well  settled  that  when  a  contract  is  discharged  by  breach  the 
injured  person  has  three  distinct  rights: 

(1)  To  be  exonerated  from  further  performance.     This  applies 
to  either  party. 

For  example,  let  us  suppose  a  contractor  was  to  be  paid  periodically  at 
different  stages  of  the  work  on  a  house,  so  much  when  the  foundation  was 
done,  another  sum  when  the  frame  was  up  and  boarded  in,  another  when 
plastered,  etc.  It  is  evident  that  he  should  not  be  obliged  to  proceed  to 
shingle  and  plaster  the  house  if  the  stipulated  sum  was  not  forthcoming  when 
the  house  was  boarded  in. 

(2)  The  injured  person  may  sue  on  quantum  meruit.  (See 
§§  100-129.)  It  is  quite  apparent  that  he  should  be  entitled  to 
sue  for  the  value  of  work  already  done.  It  is  evident  that  this 
rule  refers  to  breach  on  the  part  of  the  owner. 

129.  This  action  of  quantum  meruit  probably  deserves  a  further  word  in 
passing.     Though  it  is  roughly  defined  as  an  action  upon  an  implied  contract, 
it  is  more  accurately  classified  as  a  "  quasi-contract."     That  is  to  say,  a  quasi- 
contract  is  an  obligation  similar  to  a  contract  but  which  has  not  arisen  in  the 
regular  manner,  and  is  said  to  spring  from  the  lawful  and  voluntary  acts  of 

90 


CONTRACT   PRINCIPLES  §  131 

the  parties  in  the  absence  of  any  agreement.  The  root-idea  is  that  there  shall 
be  no  unjust  enrichment  on  the  part  of  one  party  at  the  expense  of  the  other. 
So  in  the  case  just  put,  the  contract  was  for  the  whole  house  with  provision 
for  payment  at  stated  periods.  This  contract  has  been  broken,  hence  the 
parties  now  stand  in  a  quasi-contractual  relation,  since  they  have  not  carried 
put  what  was  intended.  The  distinction  between  quasi-contract  and  a  simple 
implied  one,  therefore,  is  that  in  an  implied  contract  there  never  was  any 
expression  of  terms  to  make  a  contract,  while  a  quasi-contract  may  not  inaptly 
be  called  the  shattered  remains  of  an  express  contract.  The  express  contract 
has  been  broken,  but  not  wiped  out  of  existence.  What  is  left  of  the  obli- 
gation is  called  a  quasi-contract. 

(3)  The  third  available  remedy  is  for  the  injured  party  to  sue 
for  damages  sustained  by  reason  of  the  breach.  (Anson,  Con- 
tracts, p.  308.)  It  was  shown  in  §  122  that  whether  or  not  the 
breach  was  sufficient  to  discharge  the  contract,  yet  it  always  gave 
rise  to  an  action  for  damages.  This  is  a  subject,  therefore,  which 
we  shall  next  consider. 

130.  DAMAGES.  —  The   general   rule   for   determining  the 
amount  of  damages  recoverable  is  that  the  amount  shall  be  the 
equivalent  of,  or  a  compensation  for,  the  loss  or  injury  suffered 
(112  Mass.  497).     If  no  loss  has  occurred  the  plaintiff  is  only 
entitled   to    "  nominal   damages/'   e.g.,    one   cent.     In   general, 
damages  are  given  only  as  compensation,  and  not  as  punish- 
ment.    It  is  only  actual  and  direct  loss,  and  such  consequential 
injuries  as  are  sustained  as  the  natural  and  direct  results  of  the 
defendant's  violation  of  his  contract.     Remote  damages,  meaning 
those  rising  indirectly,  cannot  be  recovered.*    In  one  case  where 
a  contractor  was  not  allowed  to  carry  out  a  bargain  the  damages 
were  held  to  be  the  profits  he  would  have  made  on  the  job. 
But  generally  such  profits  are  too  conjectural,  and  subject  to 
too  many  contingencies  to  admit  of  proof  in  court.    And  profits 
contingent  upon  speculations  are  not  generally  recoverable.     (110 
U.  S.  338.) 

131.  For  the  purposes  of  engineering  contract-writing,  damages 
are   of   two   sorts,    liquidated  and   unliquidated.     By   liquidated 
damages  is  meant  the  sum  agreed  upon  in  advance  by  the  parties 
as  compensation  for  a  breach ;  by  unliquidated  damages  are  meant 
sums  such  as  a  jury  would  award  when  the  case  is  presented  to 
them  upon  its  own  merits.     Formerly  it  was  not  uncommon  to 
provide  that  if,  for  instance,  the  work  was  not  completed  at  such 
a  date,  a  certain  sum  was  agreed  upon  as  a  penalty  to  be  paid  by 
the   contractor.    There  is  a  difference  between  a  penalty  and 

*  See  Appendix  Note  8.     "  Indirect  Damages." 

91 


§  132  CONTRACTS 

liquidated  damages,  however.  In  effect  the  difference  is  that 
the  amount  which  can  be  recovered  in  a  suit  under  a  penalty 
clause  is  not  the  sum  named  as  such,  but  only  the  actual  damages 
sustained;  whereas  liquidated  damages  are  assessed  at  the  sum 
agreed  upon  by  the  parties.  To  be  enforceable,  liquidated 
damages  must  be  commensurate  with  the  injuries  suffered,  and 
this  is  a  general  rule  of  law.  Such  a  stipulation  is  good  when 
the  damages  cannot  be  ascertained.*  This  point  is  illustrated 
by  the  peculiarity  of  engineering  work  where  all  parts  ought  to 
progress  at  a  fixed  rate  of  speed,  and  it  might  be  impossible  to 
determine  just  what  loss  was  suffered  by  reason  of  a  failure 
of  some  one  to  live  up  to  his  contract  as  to  time  of  delivering 
materials,  etc.,  etc. 

To  evade  the  provision  for  liquidated  damages,  the  contractor 
must  show  that  the  sums  stipulated  are  unreasonable  or  exor- 
bitant. Encountering  difficult  construction,  the  happening  of 
casualties  beyond  contractor's  control,  such  as  delay  by  high 
water,  meeting  harder  and  tougher  rock,  etc.,  will  not  relieve  from 
a  provision  for  liquidated  damages. 

132.  Liquidated  Damages  for  the  Contractor.  —  Liquidated 
damages  are  commonly  charged  against  the  contractor  for  not 
completing  his  work  on  time.  Suppose  the  contractor  can  finish 
ahead  of  time,  is  it  fair  for  the  owner  to  delay  him,  and  make 
him  maintain  his  plant  and  force  when  he  could  be  using  them  to 
advantage  elsewhere,  because  the  completed  work  is  of  no  especial 
benefit  to  the  owner  ahead  of  time?  Should  he  have  liquidated 
damages  for  the  owner's  delay? 

On  a  large  aqueduct  tunnel  in  New  York  the  contract  time  was  48  months. 
By  good  management  and  improved  methods  the  contractor  completed 
95  per  cent  of  the  work  in  26  months.  The  balance  was  the  installation  of 
some  metal  work  to  be  furnished  by  the  city  and  concreting  same  afterwards. 
The  metal  was  not  delivered  for  18  months  after  the  contractor  was  ready  to 
receive  it. 

In  the  meantime  the  contractor  had  to  keep  his  plant  in  place,  maintain 
watchmen,  pumps  and  a  force  to  look  after  the  plant,  besides  keeping  his 
bond  in  force,  losing  the  interest  on  the  retained  percentage  amounting  to 
half  a  million  dollars  and  sundry  other  items.  Eventually  he  finished  the  job 
just  within  contract  time. 

Similarly,  a  10-months'  delay  in  deciding  on  a  station  location  and  con- 
sequent delay  in  turning  over  the  plans  to  a  New  York  subway  contractor, 
carried  the  work  over  into  a  period  when  labor  and  materials  commanded 
very  much  higher  prices.  The  station  cost  him  about  $140,000  more  than  if 
it  had  been  done  ten  months  previously,  when  he  should  have  had  the  plans. 

*  See  Appendix  Note  9.     "  Liquidated  Damages." 

92 


CONTRACT   PRINCIPLES  §  134 

Plainly  there  is  but  one  fair  answer  to  the  question.  That  it 
need  be  asked  evidences  but  another  case  of  traditional  contract 
provisions  running  chiefly  in  favor  of  the  owner,  as  against  the  con- 
tractor. We  have  discussed  "mutuality"  of  contracts  as  to  under- 
standing. Shall  not  engineers  strive  to  write  contracts  embodying 
mutuality  as  to  reasonableness,  and  fairness  to  both  parties? 

133.  Unliquidated  Damages.  —  A  Government  dredging  con- 
tractor was  delayed  in  commencing  certain  operations  by  the 
failure  of  the  Government  inspector  to  lay  out  the  work,  due  to 
the  loss  of  a  blue-print  map  mailed  to  him  but  not  received. 
During  the  delay  the  contractor's  plant  was  idle,  at  an  estimated 
cost  of  $300.41,  for  which  a  bill  was  rendered  against  the  United 
States.     The  contract  provided  for  an  extension  of  time  for  delays 
caused  through  the  fault  of  the  Government. 

Held:  That  the  claim  was  one  for  unliquidated  (i.e.,  unascer- 
tained) damages,  which  the  executive  officers  of  the  Government 
were  without  authority  to  settle,  but  that  it  was  determinable 
by  Court  action. 

134.  Contract  Writing.  —  The  following  is  an  actual  illus- 
tration of  "  lawyer  "  contract-writing,  when  well  above  700  words 
are  used  to  convey  and  obscure  a  relatively  simple  agreement. 

It  should  then  be  required  to  rewrite  Clause  7,  without  sac- 
rificing anything  of  its  force  or  intention,  using  250  words  or 
less.  (See  §§  392-93.) 

"  7.  Liquidated  Damages. — Whereas  it  is  agreed  that  whenever  time  is 
mentioned  in  this  contract,  time  shall  be  and  is  of  the  essence  of  this  con- 
tract; it  is  therefore  understood  and  agreed  by  and  between  the  parties 
hereto  that  the  State  of  Oklahoma  would  suffer  loss  should  the  contractor 
herein  fail  to  have  this  building  here  contracted  for  fully  completed  in  all 

of  its  parts  and  departments  on  the  said 19 , 

and  in  its  fully  completed  condition  delivered  to  the  State  Capitol  Com- 
mission for  and  on  behalf  of  the  State  of  Oklahoma;  that  all  of  said  loss  and 
damage  thus  occasioned  and  suffered  by  the  State  of  Oklahoma  the  con- 
tractor herein  expressly  agrees  to  make  good  and  pay  to  the  State  of  Oklahoma. 

Now,  therefore,  in  order  to  satisfactorily  adjust  the  damages  on  account 
of  such  failure  and  the  parties  hereto  realizing  that  it  might  be  impossible 
to  accurately  compute  or  estimate  the  amount  of  such  loss  or  damages  which 
the  State  of  Oklahoma  would  sustain  by  reason  of  the  Contractor  failing  to 
fully  complete  said  building  within  the  time  required  by  this  contract,  the 
Contractor  hereby  covenants  and  agrees  to  pay  to  the  State  of  Oklahoma, 
as  and  for  liquidated  damages  the  sum  of  Three  Hundred  Dollars  per  day 
for  each  and  every  day,  Sundays  and  legal  holidays  excepted,  after  the  said 

first  day  of 19 ,  during  or  upon  which  the  said 

work  or  any  part  thereof  remains  incomplete  and  unfinished  or  while  said 
building  is  in  possession  of  the  Contractor  herein;  it  is  expressly  agreed  that 
said  sum  is  not  and  shall  not  be  considered  as  a  penalty,  but  it  is  understood 
and  agreed  between  the  parties  hereto  that  said  sum  shall  stand  as  the  liqui- 

93 


§  134  CONTRACTS 

dated  and  compensatory  damages  which  the  State  of  Oklahoma  will  suffer 
per  day  for  each  and  every  day  for  and  on  account  of  any  failure  on  the  part 
of  the  Contractor  to  have  said  work  completed  in  all  of  its  parts  and  depart- 
ments on  said  19 and  that  any  sum  which 

may  be  due  the  State  for  such  damages  shall  be  deducted  and  retained  by 
the  State  through  the  State  Capitol  Commission  from  any  balance  which  may 
be  due  the  Contractor  herein  when  said  work  shall  have  been  finished  and 
accepted  as  hereinafter  provided. 

And  the  said  sum  of  Three  Hundred  Dollars  per  day  is  hereby  agreed 
upon  by  and  between  the  parties  hereto  as  being  the  amount  of  loss  which 
the  State  will  sustain  for  each  and  every  day  the  Contractor  shall  retain 

possession  of  said  building  after  the  . . . . 19 ,  and 

in  case  of  any  such  failure  the  State  of  Oklahoma  shall  be  under  no  obligation 
to  show  or  prove  any  actual  or  specific  loss  or  damages.  It  is,  however, 
understood  and  agreed  that  in  case  any  such  failure  to  complete  the  said 
work  or  any  part  of  the  same,  on  the  day  herein  provided  for  its  completion, 
shall  be  due  to  any  cause  or  circumstance  absolutely  and  entirely  beyond 
the  control  of  the  Contractor,  then  so  much  of  the  delay  as  shall  result  from 
any  such  cause  or  circumstances  shall  form  no  part  of  the  number  of  days 
for  every  one  of  which  the  Contractor  is  to  pay  the  State  of  Oklahoma  the 
said  sum  of  Three  Hundred  Dollars  ($300)  herein  specified,  provided  that 
the  Contractor  shall  give  notice  in  writing  to  the  Secretary  of  the  State  Capitol 
Commission  in  person,  or  in  his  absence  from  his  office  or  from  Oklahoma 
City,  Oklahoma,  to  the  person  in  charge  of  his  office,  of  any  such  cause  or 
circumstance  and  within  ten  days  after  such  cause  or  circumstance  shall 
appear  or  come  to  pass  or  arise  or  occur,  whereupon  it  shall  be  the  duty  of 
the  said  Commission  to  investigate  or  cause  to  be  investigated,  all  of  the 
facts  and  circumstances  upon  which  said  notice  is  predicated;  and  if  as  a 
result  of  such  investigation  the  Commission  should  find  the  facts  to  be  as 
stated  and  claimed  by  the  Contractor,  they  shall  thereupon  enter  of  record 
an  approval  of  the  contractor's  claim  for  an  extension  of  time,  and  shall 
state  in  said  record  the  number  of  days  adjudged  by  them  for  which  the 
Contractor  is  entitled  to  credit  on  account  of  any  such  cause  or  circumstance; 
and  the  Contractor  hereby  expressly  covenants  and  agrees  that  he  shall  not 
be  entitled  to  and  that  he  will  not  claim  any  reduction  of  damages  on  account 
of  any  such  cause  or  circumstances,  unless  such  notice  is  given  to  the  Com- 
mission as  above  specified  and  then  only  for  such  number  of  days  as  shall 
be  allowed  by  the  Commission  as  herein  specified,  provided,  however,  that 
appeal  from  the  decision  of  the  Commission  may  be  made  to  Arbitration  as 
provided  for  in  Article  5. 

"Liquidated  Damages"  Clause.  —  Condensed  from  Okla- 
homa State  Capitol  Contract.  (This  illustrates  "  engineer " 
style  of  writing.  The  student  should  check  this  carefully  against 
the  long  form,  to  see  whether  in  fact  anything  is  omitted.) 

"  Three  Hundred  Dollars  ($300)  per  day  is  hereby  agreed  upon  as  the 
amount  of  liquidated  damages  sustained  for  each  and  every  day  the  con- 
tractor retains  possession  of  said  building  after ,  1915. 

It  is,  however,  understood  and  agreed  that  in  case  failure  to  complete  said 
work  on  the  day  herein  set  shall  be  due  to  any  cause  beyond  the  control  of 
the  contractor,  then  the  delay  thereby  resulting  shall  form  no  part  of  the 
time  for  which  liquidated  damages  shall  be  paid  provided  the  contractor 
gives  written  notice  of  such  causes  within  ten  days.  The  commission  shall 
then  investigate,  said  causes  and  ascertain  whether  such  claims  are  justified 
and  if  so  determine  the  number  of  days'  extension  to  be  granted.  Appeal 
from  the  decision  of  said  Commission  shall  be  made  to  arbitrators  as  provided 
in  Article  V." 

94 


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QUESTIONS 

Questions  for  Study  and  Review 
Chapter  III 

1.  How  must  an  express  contract  be  formed?    Becomes  a  bind* 
ing  obligation  when? 

2.  When  is  a  revocation  operative? 

3.  What  is  the  effect  of  failure  to  observe  the  explicit  terms  of  an 
offer? 

4.  Tell  how  and  when  acceptance  is  completed. 

5.  Cite  examples  of  public  offers.     How  is  acceptance  made? 
What  is  the  status  of  a  bid  tendered? 

6.  What  formality  is  required  in  making  an  acceptance? 

7.  Can  an  acceptance  be  withdrawn?     Why? 

8.  What  makes  the  subject  of  implied  contracts  a  difficult  one? 

9.  What  can  you  say  as  to  the  necessary  limitations  on  the 
language? 

10.  Explain  the  necessity  for  rules  for  "  construing  "  contracts. 

11.  How  will  you  detect  the  presence  of  an  implied  contract? 
Give  an  illustration  of  such  a  contract. 

12.  When  will  the  law  not  imply  a  contract  though  the  facts 
might  seem  to  warrant  it? 

13.  What  is  a  conditional  contract?     Give  an  example. 

14'    What  can  you  say  as  to  express  and  implied  conditions? 

15.  How  are  conditions  introduced  into  contracts,  and  what  sorts 
are  there? 

16.  Explain  meaning  and  effect  of  "  condition  precedent.11 

17.  Suppose  a  valid  condition  precedent  is  not  observed.     What 
happens? 

18.  Cite  three  of  the  commonest  conditions  precedent  found  in 
engineering  contracts. 

19.  What  language  should  be  used  in  creating  a  condition  prec- 
edent?   Suppose  no  mention  is  made  of  the  condition? 

20.  What  is  the  object  of  a  ((  condition  subsequent "?     They 
commonly  occur  where? 

21.  Distinguish  between  conditions  precedent  and  concurrent. 

22.  "  Rules  of  Construction,"  —  what  are  they? 

23.  What  is  the  foremost  rule  of  construction? 

24-    How  will  you  construe  a  contract  exhibiting  marked  incon- 
sistencies? 

25.    How  will  the  acts  of  the  parties  affect  the  interpretation? 

95 


CONTRACTS 

26.  Recite  upon  the  relative  importance,  or  weight,  of  the  parts 
of  a  contract. 

27.  What  is  the  aim  of  our  study  of  contracts?     How  accom- 
plished? 

28.  "  Work  to  be  to  the  satisfaction  of  the  owner,"  —  what  is 
meant? 

29.  What  is  the  relation  of  "  custom  and  usage  "  to  engineering 
contract-writing?     Tell  how  it  becomes  important. 

30.  What  is  the  rule  as  to  necessary  implications?     Why  neces- 
sary? 

81.  Can   a   usage   be   claimed?      Under   what   circumstances? 
What  relation  does  usage  have  to  express  terms? 

82.  Why  is  conflict  of  laws  important  for  the  engineer?     How 
does  the  conflict  arise?     What  about   the   size    and   scope   of  the 
subject? 

88.  Explain  "  Lex  loci  contractus,"  and  apply  it  to  corre- 
spondence. 

84»    How  does  "  intention  of  parties  "  bear  upon  the  foregoing? 

85.  What  law  governs  contracts  pertaining  to  real  estate? 

86.  Does  the  rule  as  to  "  lex  fori "  seem  reasonable  to  you? 
Why? 

87.  What  is  the  rule  connecting  the  place  of  making  with  the 
validity  of.  a  contract? 

88.  Explain  meaning  of  "  discharge  of  a  contract.1'.     Leading 
mode  is  what? 

89.  What  is  the  question  of  substantial  performance?    Illus- 
trate. 

40.  What  do  you  understand  by  "  specific  performance "? 
Granted  by  whom? 

42.  Is  "  specific  performance  "  applicable  to  engineering  con- 
tracts? Explain  why  or  why  not. 

48.  What  is  the  origin  and  position  of  the  system  of  jurispru- 
dence known  as  "  equity  "? 

44.  What  is  the  legal  theory  of  damages  with  respect  to  the  per- 
formance of  a  contract? 

45.  Under  what  conditions  may  specific  performance  be  granted? 

46.  Explain  how  tender  of  performance  will  be  a  condition  prec- 
edent to  a  right  to  sue.     Its  effect  is  what? 

47.  When  is   "  substantial "   performance   (the  issue)   raisedl 
What  is  the  object  of  the  doctrine? 

96  '•*-. 


QUESTIONS 

48.  Who  determines  whether  or  not  there  has  been  substantial 
performance? 

49.  Explain  "  quantum  meruit "  in  this  connection. 

50.  Illustrate  what  is  meant  by  "  entire  "  and  by  "  separable  " 
contracts. 

51.  Summarize  upon  the  various  phases  of  "  performance." 

52.  Discuss  substantial  performance  in  relation  to  discharge. 

53.  Explain  discharge  by  agreement.     What  are  the  requisites'! 
When  can  it  not  be  done? 

54-    Suppose  new  matter  is  inserted  into  the  contract,  —  what 
happens? 

55.  Illustrate  what  is  meant  by  "  cancellation  and  abrogation  " 
clauses. 

56.  Explain  carefully  "  discharge  by  waiver."     Why  import- 
ant to  the  engineer? 

57.  What  is  meant  by  discharge  by  "  accord  and  satisfaction  "? 

58.  How  should  alterations  be  provided  for?     What  part  does 
the  intention  of  the  parties  play  here? 

59.  What  is  the  relation  of  consideration  to  the  matter  of  altera- 
tions?    Discuss. 

60.  "  Changes  may  be  made  without  further  consideration"  — 
comment  upon  this. 

61.  When  is  a  discharge  effected  by  an  alteration? 

62.  What  is  the  bearing  of  the  question  of  a  seal  upon  alterations? 

63.  What  does  Wait  say  as  to  supplemental  contracts? 

64.  What  about  letters  ordering  "  extras  "?     How  do  they  con- 
strue the  contract? 

65.  What  is  the  meaning  of  "  extras  "?     Explain  their  import- 
ance. 

66.  What  is  a  fair  and  common  provision  regarding  them? 

67.  Suppose  additional  drawings,  or  details  are  to  be  furnished, 
— how  should  the  situation  then  be  handled? 

68.  Why    should    specifications    carefully    delimit    the    work? 
What  is  the  contractor's  natural  position  in  the  matter? 

69.  How  do  controversies  over  extras  most  frequently  arise? 
Avoided  how? 

70.  Explain  a  practical  way  of  providing  for  extras  and  of 
payment  for  them. 

71.  Name  three  other  ways  of  providing  for  extras  and  their 
payment. 

97 


CONTRACTS 

72.  Recite  upon  discharge  by  payment. 

73.  What  is  meant  by  "breach"?    What  is  its  effect? 
74-    Under  what  circumstances  does  a  breach  occur? 

75.  What  are  the  questions  presented  under  a  breach? 

76.  How  will  the  question  whether  there  has  been  a  substan- 
tial breach  be  answered ',  —  and  by  whom? 

77.  If  suspension   of  work   by   the  contractor  is   being   con- 
sidered, how  should  the  contract  deal  with  the  matter? 

78.  What  points  are  usually  covered  when  dealing  with  such 
suspension? 

79.  What  rights  has  the  injured  person  when  a  contract  is  dis- 
charged by  breach? 

80.  Explain  as  carefully  as  possible  the  meaning  of  "quasi- 
contract." 

81.  What  is  the  toot  idea  in  "quantum  meruit?" 

82.  Distinguish  between  a  quasi-contract  and  an  implied  con- 
tract. 

83.  What  is  the  general  principle  upon  which  damages  are 
awarded? 

84.  Can  you  distinguish  between  direct  and  indirect  damages? 

85.  Tell  the  difference   between  liquidated  and  unliquidated 


86.  Distinguish  between  liquidated  damages  and  penalties*    Tell 
why  the  former  are  more  likely  to  be  recognized  in  an    engineering 
contract. 

87.  Does  difficult  construction  relieve  against  liquidated  dam- 
ages?   Why? 

88.  Prepare  and  submit  to  the  instructor  a  contract  paragraphed 
under  "Liquidated  Damages"  designed  to  properly  and  fairly  pro- 
vide in  advance  for  the  fact*  described  in  No.  182. 

89.  Suppose  the  County  Commissioners  decide  not  to  let  con- 
tract for  bridges  on  day  advertised  for  receiving  bids.     They  ask 
bidders  if  bids  will  stand  open  until  Saturday.    Bidders  consent,  but 
on  Thursday,  "X,"  a  bidder,  decides  to  withdraw  his  offer.    Can  the 
County  hold  him  if  it  should  desire. to  have  him  do  the  work?    Was 
his  promise  to  wait  a  gratuitous  promise?     No,  because  he  was  not 
already  legally  bound  to  do  that.    But  did  the  County  suffer  a  legal 
detriment,  and  thus  make  his  agreement  to  wait  binding? 


CHAPTER  IV 

AGENCY,  TORT,   AND   INDEPENDENT 
CONTRACTOR 

The  engineer  must  often  act  as  the  representative  or  agent  of  his  employer. 
He  enters  upon  this  capacity  by  virtue  of  a  contract,  either  express  or 
implied,  and  when  the  relation  is  properly  established,  he  can  bind  his 
employer  upon  contracts  made  in  the  latter's  behalf;  hence  the  law  of 
Contract  is  thoroughly  interwoven  with  the  law  of  Agency.  We  shall  see 
how  the  agency  may  be  set  up,  what  some  of  the  duties  are  which  the 
principal  owes  his  agent,  and  vice  versa,  as  well  as  what  obligations  the 
agent  owes  third  persons. 

The  rights  possessed  by  reason  of  one's  membership  in  a  civilized 
community  will  then  be  examined,  and  their  distinctions  from  contract 
rights  noted.  As  the  above  mentioned  "  natural"  rights  will  be  met  at 
every  turn,  it  behooves  the  engineer  to  recognize  the  elements  of  Fraud, 
Negligence,  Nuisance,  and  Trespass,  to  be  well-cognizant  of  the  sources  of 
his  liability  in  this  respect,  and  to  thoroughly  understand  the  status  and 
obligations  of  the  "  Independent  Contractor." 

AGENCY 

132.  DEFINITION    AND    PARTIES    TO    THE    RELA- 
TION. —  Agency  is  the  relation  between  two  or  more  persons, 

created  by  a  contract,  express  or  implied,  by  which  one 
(the  agent)  undertakes  with  more  or  less  discretionary  power  to 
represent  another  (the  principal)  in  the  transaction  of  certain 
lawful  acts  or  business.  Agency  is  a  subject  of  some  complexity, 
and  only  a  few  of  its  prominent  elements  will  be  discussed  here. 

At  common  law,  every  person  who  is  competent  to  act  in  his 
own  right,  and  for  himself,  may  act  by  an  agent.  But  a  principal 
cannot  confer  authority  upon  an  agent  to  do  for  him  that  which 
he  could  not  do  for  himself,  were  he  present  and  acting.  As  to 
who  may  be  principal,  the  same  rules  of  competency  apply  as  in 
contracts,  but  any  one  with  a  sound  mind  and  sufficient  under- 
standing may  act  as  an  agent.  In  general,  whatever  a  person 
may  do  for  himself  he  may  do  by  an  agent.  But  this  does  not 
apply  in  extremely  personal  things  such  as  making  a  will,  or  con- 
tracting a  marriage. 

133.  The  agency  relation  is  a  contractual  one.     It  exists  by 
agreement,  there  must  be  a  "  meeting  of  the  minds,"  and  the 
intention  of  the  parties  must  find  expression  either  in  words  or 
action.     Since  no  one  can  become  the  agent  of  another  save  by 

99 


§134  CONTKACTS 

the  latter's  will  and  intention  (express  or  implied),  an  agent  cannot 
by  performing  an  act  create  for  himself  authority  to  do  so,  nor 
can  authority  be  proved  by  general  reputation  to  that  effect,  nor 
by  his  own  statement  that  he  is  an  agent,  except  that  he  may 
testify  upon  this  point  in  Court,  like  any  other  witness. 

Suppose  you  are  a  contractor  engaged  in  construction,  and  some  one 
comes  upon  the  work,  saying,  "I  am  a  new  inspector  sent  here  by  the  owners." 
Then  he  gives  you  orders  which  materially  change  the  specifications,  and, 
though  you  comply,  you  discover  later  that  he  had  no  authority  to  give  such 
orders.  In  this  case  you  have  no  redress  against  the  owners  for  the  additional 
expense  caused  you.  It  was  incumbent  upon  you  to  ascertain  whether  such 
person  was  in  fact  the  owner's  agent  and  you  must  take  the  consequences  of 
your  neglect  to  do  so. 

134.  CREATION  OF  AGENCY.  —  When  an  agency  is  created 
by  an  express  instrument,  such  a  formal  authority  is  called  a 
power  of  attorney,  and  the  agent  is  then  called  an  attorney  in  fact. 
An  agency  will  frequently  be  considered  to  exist  when  circum- 
stance of  ordinary  usage  would  necessarily  imply  an  agency. 

Suppose  a  firm  regularly  paid  bills  contracted  by  its  chief  clerk,  for  in- 
stance, but  later  disclaimed  a  bill  from  the  same  sellers  incurred  by  the  same 
clerk,  claiming  they  had  given  him  no  authority  to  buy  for  them.  The  firm 
would  be  bound,  in  such  a  case,  upon  an  "agency  by  implication." 

But  in  the  absence  of  substantial  ratification,  as  in  the  above 
case,  authority  cannot  be  inferred  from  ordinary  business  or 
family  relations. 

To  illustrate:  The  president  of  a  corporation  has  no  power  to  enter 
into  contracts  in  behalf  of  the  corporation  by  virtue  of  his  office  merely,  unless 
he  has  general  or  special  authority  given  him. 

Again,  suppose  a  contractor  is  working  for  a  board  or  committee,  and 
that  its  members  visit  the  work,  give  directions,  order  changes  or  new  work 
which  can  only  be  authorized  by  the  board  as  a  whole.  If  the  contractor 
obeys  such  orders  he  is  likely  to  lose  the  price  of  the  unauthorized  work. 
But  if  such  acts  are  subsequently  ratified  (see  §  142) ,  authorized,  and  adopted 
by  the  board,  then  the  contractor  is  in  a  safe  position. 

But  even  then  the  contractor  must  beware  that  the  board  does  not  exceed 
its  authority,  for  if  it  attempts  to  make  a  contract  which  is  ultra  vires  (see 
§  249)  and  void,  he  will  be  a  loser  as  before. 

No  one  need  deal  with  an  agent  unless  he  so  chooses,  but  if 
he  does  he  is  bound  to  ascertain  the  extent  of  the  agent's  authority 
"  at  his  peril,"  that  is,  take  the  consequences  of  his  failing  to  do  so. 

135.  SCOPE  OF  AUTHORITY.  —  A  principal  is  bound  to 
give  his  orders  in  clear  terms,  and  is  responsible  for  any  ambiguity 
in  them.     For  if  two  meanings  were  possible  and  the  wrong  one 
was  taken  by  the  agent  and  acted  upon  by  him,  this  binds  the 
principal.     To  the  same  effect,  it  is  clear  that  an  engineer  who  is 
the  owner's  agent  to  supervise  construction,  etc.,  has  his  powers 
strictly  confined  to  those  conferred  in  the  contract.     But  it  is  a 

100 


AGENCY,  TORT  AND  INDEPENDENT  CONTRACTOR     §138 

well-defined  and  logical  principle  that  an  express  authority  to  do, 
a  certain  thing  carries  with  it  an  implied  authority  to  do  all  those 
things  which  are  necessary  to  the  full  achievement  of  the  thing 
expressly  mentioned. 

Of  course  the  difficulty  arises  in  determining  whether  or  not  a 
certain  unmentioned  thing  was  logically  necessary  to  accomplish 
the  stipulated  result.  Thus  the  way  to  avoid  this  difficulty  in 
engineering  contracts  is  to  specify  in  great  detail  just  what  the 
engineer's  duties  shall  be,  but  even  then,  the  question  may  still 
arise  with  reference  to  something  not  mentioned. 

Thus,  unless  specially  authorized,  an  engineer  may  not  promise  extra 
compensation  for  work  or  materials  comprised  in  the  contract;  nor  add  new 
terms  to  the  specifications;  nor  deviate  from  a  specified  mode  of  measuring 
quantities,  even  though  in  his  opinion  some  other  method  is  far  better  and 
fairer.  (Compare  with  §  440.) 

136.  DELEGATED  POWERS.  —  Another  important  prac- 
tical matter  relates  to  the  delegation  of  authority  by  one  agent 
to  another,  sometimes  called  a  sub-agent.     It  is  in  theory  held  that 
the  trust  committed  to  an  agent  is  exclusively  personal,  and  can- 
not be  passed  on  by  him  to  another,  without  express  authority 
for  doing  so.     But  this  rule  is  modified  by  the  usages  of  the  trade 
or  profession.     (Consult  §  §  85-7.) 

137.  Let  us  look  at  the  case  of  an  engineer  who  may  be  an 
agent  (for  special  purposes),  of  the  Chief  Engineer,  who,  in  turn, 
is  the  agent  of  the  Railway  Company  which  employs  him.      From 
necessity  the  rule  against  delegation  does  not  apply  when  the 
object  of  the  agency  cannot  be  attained  without  it.     Thus,  the 
Chief  Engineer  cannot  be  held  to  perform  in  person  all  the  mechani- 
cal or  clerical  work  required  to  accomplish  the  tasks  he  is  charged 
with.     This  would  include  drafting,  measuring,  figuring,  driving 
stakes,   inspecting  work  and  making  estimates,   and  even  the 
general  verification  of  all  data.     It  ;s  reasonably  held  that  so  long 
as  the  Chief  maintains  a  constant  and  careful  supervision  over 
the  acts  and  operations  of  his  assistants,  knows  what  work  they 
do,  arid  how  they  do  it,  and  insists  that  all  doubtful  and  disputed 
questions  shall  be  referred  to  him,  this  is  all  that  was  contem- 
plated in  the  contract  of  his  employment. 

138.  Yet  there  is  a  higher  class  of  duties,   properly  called 
judicial  acts,  which  the  Chief  cannot  delegate  to  his  assistants. 
Examples  are :  —  Determination  of  the  proper  methods  of  pro- 
cedure; the  proper  classifications  of  materials;  the  passing  upon 

101 


$  139  CONTRACTS 

the  sufficiency  of  work  done;  and  whether  the  work  has  been 
adequately  completed,  etc. 

When  the  engineer  is  a  public  officer,  as  a  City  Engineer, 
having  duties  specifically  required  of  him  by  law,  these  he  cannot 
delegate.  He  can,  however,  employ  assistants  and  can  ratify 
and  adopt  their  acts  to  a  very  great  extent.  There  is,  perhaps,  a 
nice  distinction  between  this  and  the  "  public  "  acts  just  mentioned. 

139.  AGENCY    BY    IMPLICATION.  —  The    circumstances 
under  which  an  agency  may  arise  by  implication  are  practically 
numberless.     The  general  principle  is  that  where  a  first  person  has 
"  held  out  "  a  second  person  as  (i.e.  represented  him  to  be)  his 
agent,  and  has  permitted  the  second  person  to  act  as  such  agent, 
then  the  principal  will  not  be  allowed  to  deny  that  the  agent  was  in 
fact  authorized.     If  by  acts  and  conduct  the  principal  has  led 
others  reasonably  to  assume  such  second  person  to  be  his  agent 
and  duly  authorized  to  act  for  him,  and  a  third  person  has  relied 
upon  the  apparent  authority  of  the  agent  to  his  prejudice,  the 
same  result  is  reached.     This  is  because,  from  the  view-point  of 
equity,  one  must  act  in  good  faith  so  as  not  to  mislead  others. 
Thus  if  one  stands  by  and  permits  another  to  make  a  contract  for 
him,  without  denying  the  apparent  authority,  he  is  in  law  pre- 
vented  ("  estopped ")   from   denying  that  the  other  did  have 
authority.     (See  also  §  249-[4].) 

Suppose  you  are  the  purchasing  agent  for  a  corporation,  and  you  are 
informed  that  the  Chief  Engineer  will  need  5,000  bags  of  cement.  A  cement 
salesman  comes  in  while  you  are  in  conference  with  the  General  Manager, 
and  in  his  presence,  you  order  the  cement  off-hand.  The  Manager  makes  no 
objection,  but  finding  that  the  market  price  of  cement  has  dropped  con- 
siderably before  the  cement  is  to  be  delivered,  he  attempts  to  withdraw 
from  the  bargain  on  the  ground  that  he  never  expressly  authorized  you  to 
buy  any  cement,  that  is,  your  act  was  unauthorized.  By  the  rule  just  given, 
the  Company  will  be  held  to  your  agreement  with  the  cement  salesman. 

When  an  agency  arises  by  implication  it  is  limited  to  the 
reasonable  and  natural  requirements  of  the  case,  or  to  the  per- 
formance of  those  acts  which  might  have  been  done  by  the 
principal. 

140.  RATIFICATION  is  a  prominent  agency  doctrine  about 
which  the  engineer  needs  to  know.     By  ratification  is  meant  the 
giving  of  sanction  and  validity  to  the  previously  unauthorized 
act  of  one  who  has  assumed  to  act  for  another.     This  assumption 
may  consist  (a)  in  exercising  the  power  of  an  agency  not  yet 
created,  or  (b)  in  exceeding  the  scope  of  an  authority  which  has 

102 


AGENCY,  TORT  AND  INDEPENDENT  CONTRACTOR     §143 

been  actually  conferred.  The  act  done  must  have  been  alleged 
to  be  in  the  name  of  the  principal.  The  principal  may  ratify  (1) 
by  expressly  adopting  the  act  as  his  own,  as  by  an  oral  con- 
firmation, or  (2)  he  may  so  conduct  himself  toward  the  assumed 
agent  that  the  law  will  imply  a  ratification,  as  for  example,  where 
the  principal  accepts  the  benefits  accruing  from  the  agent's  acts, 
but  disavows  his  authority  to  do  them. 

141.  As  to  who  may  ratify,  it  is  said  that  any  one  who  can 
appoint  an  agent  for  the  purpose  of  doing  the  act,  can  ratify  the 
act  which  is  alleged  to  have  been  done  for  him,  after  the  event 
has  happened.     From  this  it  follows  that   a  principal  cannot 
ratify  an  act  done  for  him  which  he  could  not  lawfully  do  for  him- 
self.    The  student  will  observe  that  if  this  were  not  so,  here  would 
be  found  a  cloak  for  all  sorts  of  rascalities. 

142.  Essentials   to  Ratification.  —  (a)    The  pretended   agent 
must  have  assumed  to  act  for  some  one  else,  for  if  the  act  was  done 
in  his  own  name,  and  on  his  own  authority,  it  cannot  be  ratified. 
(51  111.  504.)     This  is  because  only  the  parties  to  a  contract  are 
bound  by  its  terms.     (See  §  23.) 

(6)  The  person  for  whom  the  agent  assumes  to  act  must  be 
identified  by  him  as  some  particular  person,  though  he  need  not 
designate  the  principal  by  name.  The  second  contracting  party 
must  understand  that  some  one  other  than  the  ostensible  agent 
is  interested  in  the  contract,  and  that  the  unknown  third  party 
will  be  bound  upon  it  if  the  terms  are  ratified  by  him. 

(c)  The  ratification  must  have  been  made  upon  full  knowledge 
of  the  material  facts,  or  in  voluntary  and  willful  ignorance  of 
them.  That  is,  an  agent  will  not  be  allowed  to  indulge  in  fraud 
or  sharp  practice  at  his  principal's  expense. 

143.  A  matter  closely  resembling  "  ratification,"  and  often 
arising  in  sales  where  privacy  is  desired,  is  the  doctrine  of  UN- 
DISCLOSED PRINCIPAL.     The  rule  is  that  for  acts  done  in  his 
own  name  without  disclosing  his  principal,  the  agent  is  primarily 
liable ;  but  if  he  is  in  fact  acting  for  a  principal,  such  principal  may 
be  bound  upon  the  contract  if  the  party  dealt  with  (upon  discover- 
ing this)  elects  within  a  reasonable  time  to  have  it  so.     This  is  true 
even  though  the  credit  was  given  to  the  agent  under  a  misappre- 
hension as  to  his  true  character.     (Mechem  on  Agency,  and  48 
Conn.  314.) 

Let  us  look  at  a  practical  case:    Suppose  you  are  the  locating  engineer 

103 


§  144  CONTRACTS 

for  the  X.  Y.  R.R.  Co.,  and  before  your  survey  line  reaches  a  town  you  observe 
that  a  certain  town-lot  occupies  a  strategic  position  for  your  Company.  To 
forestall  difficulties  and  delay  (or  perhaps  your  competitors)  you  quietly 
agree  to  buy  this  lot  in  your  "own  name,  without  advising  th§  seller  of  your 
official  position.  This  is  later  made  known  to  him.  Can  he  hold  you  or  the 
Company  for  the  price?  By  the  rule  just  given,  either  the  principal  or  agent 
can  be  held,  at  the  seller's  election. 

But  this  case  presents  certain  other  factors  which  may  vary  the  result 
substantially.  In  the  first  place,  being  a  sale  of  land,  the  Statute  of  Frauds 
(see  §  299)  requires  the  contract  to  be  in  writing;  in  the  second  place,  deeds  of 
land  are  nearly  everywhere  required  to  be  under  seal;  and  third,  in  interpreting 
sealed  instruments,  only  parties  named  in  such  contracts  are  bound  thereby. 
As  a  result,  therefore,  you  only  could  be  held  by  the  seller.  But  had  the  sale 
been  about  anything  other  than  real  estate,  the  rule  as  to  undisclosed  principal 
would  have  applied  without  exception. 

144.  The  doctrine  of  Undisclosed  Principal  benefits  a  person 
who  deals  with  another  when  the  second  person  is  an  agent,  though 
this  fact  is  unknown  to  the  first  party.     It  gives  the  first  person 
additional  rights  since  by  it  he  has  a  choice  of  the  persons  whom 
he  will  hold  upon  the  contract.     It  is  distinct  from  the  whole  idea 
of  "  ratification  "  since  its  effect  is  to  wholly  relieve  the  agent  of 
his  responsibility  for  the  contract  which  he  has  made. 

It  is  to  be  borne  in  mind  that  ordinarily  a  leading  purpose  of  an  agency 
is  to  allow  the  agent  to  make  contracts  on  behalf  of  the  principal,  and  which 
bind  him,  if  the  agent  was  acting  within  the  scope  of  his  authority.  They  are 
truly  the  contracts  of  the  principal,  and  the  agent  is  merely  a  tool  or  mouth- 
piece. In  making  such  contracts,  the  agent  relieves  himself  of  responsibility 
by  making  the  contract  in  his  principal's  name,  signing  it  "M.  N.,  by  A  B  , 
Agent."  (See  also  §364.) 

The  discussion  of  undisclosed  principal,  it  will  be  seen,  deals 
solely  with  the  case  where  the  agent  makes  no  mention  of  his 
principal,  nor  indicates  that  there  is  one.  Hence  if  the  principal 
is  to  be  held  we  run  counter  to  the  rule  "  Only  the  parties  [  named 
in]  to  a  contract  are  bound  by  it."  (§  23.)  Thus  the  agency 
rule  of  undisclosed  principal  is  an  exception  to  the  broad  rule  of 
contracts  just  stated. 

145.  ASSIGNMENT    OF    CONTRACTS.  —  Because    of    its 
apparent  similarity  to  the  topic  "  undisclosed  principal,"  assign- 
ment of  contracts  may  easily  cause  the  student  some  difficulty. 
We  are  very  familiar  with  the  rule  that  only  parties  to  a  contract 
are  bound  by  it.     Since  every  person  contracts  with  reference  to 
the  responsibility,  character,  etc.,  of  the  other  party,  there  would 
be  no  safety  in  contract  if  the  other  party  could,  at  his  pleasure, 
substitute  another  in  his  place.     Also,  this  would  plainly  defeat 
the  requisite  "  meeting  of    the  minds."     (See    §  18,    [4].)     By 
assignment  is  meant  the  transfer  of  one's  rights  or  duties  under  a 

104 


AGENCY,  TORT  AND  INDEPENDENT  CONTRACTOR     §147 

contract  to  an  outsider  not  a  party  to  it.  The  essential  part  of  the 
rule  is  brief  :  —  An  assignment  cannot  be  made  without  the  consent 
of  the  other  party  to  the  contract.  (Exception:  Negotiable  In- 
struments.) Strictly  speaking,  what  happens  in  an  assignment  is 
that  the  original  contract  is  cancelled  by  agreement  (consent)  and 
a  new  one  is  substituted  in  its  place. 

In  general,  benefits  under  a  contract  can  be  assigned,  while  liabilities 
cannot.  Another  sort  of  possible  assignment  of  non-personal  duties  is  treated 
under  "Delegation  of  Authority  "  (§§  136-7).  With  assignments  for  the 
benefit  of  creditors  we  have  nothing  to  do,  as  this  forms  an  important  part 
of  the  law  relative  to  bankrupt  estates. 

146.  SUMMARY  OF  AGENTS  AUTHORITY.  —  Mechem, 

a     well- 

known  writer  on  Agency,  summarizes  the  agent's  authority,  thus  : 
It  consists  (1)  of  the  powers  directly  and  intentionally  conferred 
by  the  voluntary  act  of  the  principal  ; 

(2)  of  those  incidental  powers  which  are  reasonably  necessary 
to  carry  into  -effect  the  main  powers  conferred,  unless  they  are 
known  to  be  prohibited  ; 

(3)  of  those  powers  which  custom  and  usage  have  added  to 
the  main  powers,  and  which  the  parties  are  deemed  to  have  had 
in  contemplation  at  the  time  of  creating  the  agency,  and  which 
are  not  known  to  have  been  forbidden  ; 

(4)  of  all  such  other  powers  as  the  principal  has  by  his  direct 
act,   negligent   omission,   or  acquiescence,   caused  or  permitted 
persons  dealing  with  the  agent  reasonably  to  believe  that  the 
principal  had  conferred; 

(5)  of  all  those  powers  whose  exercise  by  the  agent  the  prin- 
cipal has  subsequently,  with  full  knowledge  of  the  facts,  ratified 
and  confirmed.         (Mechem  on  Agency,  §  282.) 

147.  DUTIES  OF  AGENT.  —  Having  studied  somewhat  the 
extent  of  the  agent's  power  or  authority,  we  will  now  consider 
briefly  some  of  his  duties.     The  agent  is  the  representative  of  his 

principal,  and  it  is  his  duty  to  act  wit.hnyfl.lty,  fir[ftHt,yrnnrl  nnnHnn> 


free  from  all  antagonistic  interests  which  might  prejudice  the 
claims  of  the  principal  to  his  unbiased  services.     (11  Mich.  222.) 

In  a  case  where  the  agent  or  clerk  of  a  warehouseman  secretly  secured  a  lease 
of  the  premises  which  he  knew  his  employer  desired  to  renew,  he  was  held  to 
have  secured  the  same  for  his  principal,  and  was  compelled  to  make  it  over 
(59  Calif.  119.) 

Similarly,  an  agent  who  was  employed  to  settle  a  claim  was  not  allowed 
to  buy  it  in  at  a  discount,  and  then  enforce  it  against  his  principal  for  the 

105 


§148  CONTRACTS 

full  amount,  for  it  was  held  that  the  benefit  of  the  discount  secured  must 
inure  to  the  principal.     (59  Vt.  569.) 

The  foregoing  tends  to  show  that  a  purchasing  agent  has  no 
right  to  buy  on  his  own  account  when  the  market  is  low,  and  then 
to  resell  higher  to  his  employer  unless  the  principal  is  fully  aware 
of  the  whole  transaction. 

148.  An  agent  must  account  for  all  money  received  in  the 
course  of  his  agency,  and  should  he  mingle  it  with  his  own  and 
the  whole  be  stolen,  he  must  make  good  the  whole  amount.     But 
if  without  his  fault  or  negligence  the  principal's  money  be  lost, 
he  will  not  be  responsible. 

It  is  an  agent's  duty  to  notify  his  principal  fully  and  promptly 
upon  all  matters  pertaining  to  the  latter's  interests.  This  rule 
should  be  emphasized  because  notice  given  to  an  agent  is  held  to 
be  notice  given  the  principal.  This  is  frequently  an  element  of 
highest  importance  in  damage  suits  for  negligence. 

149.  Instructions  to  an  Agent.  —  It  is  the  agent's  plain  duty 
to  obey  the  wishes  and  instructions  of  his  principal  if  they  are 
reasonable  and  legal.     The  agent  is  liable  for  losses  caused  by 
his  disobedience.     (104  Mass.  152.)     Secret  instructions  from  the 
principal  contrary  to  the  agent's  apparent  authority  cannot  be 
availed  of  as  a  defense  by  the  principal  against  persons  who  have 
dealt  with  the  agent  in  accordance  with  his  apparent  authority. 

In  cases  of  sudden  emergency  or  accident,  the  agent  may 
overstep  his  instructions  if  prudence  and  a  sound  discretion  would 
warrant  his  so  doing.  As  to  his  duty  in  carrying  out  his  agency, 
considerable  is  said  under  the  topic  "  Negligence  "  (§§164-6), 
which  may  be  advisedly  read  in  this  connection. 

150.  AGENT'S  LIABILITIES  TO  THIRD  PERSONS.  — 

The  agent's  liability  to  third  persons  arises :  — 

(1)  from  the  fact  that  he  has  contracted  so  as  to  bind  him- 
self (instead  of  his  principal) ;  or 

(2)  because  he  has  failed  to  exercise  a  proper  regard  for 
the  rights  and  privileges  of  others  while  in  the  prosecution  of 
his  agency.     That  is,  he  has  committed  a  "tort."     (See  §  156.) 
One  does  not  cease  to  be  responsible  for  his  wrongful  acts  (torts) 
merely  because  he  happens  to  be  acting  as  an  agent  for  another, 
for  under  these  circumstances  both  principal  and  agent  may  be 
liable  in  a  suit  for  damages. 

151.  If  an  agent  makes  known  to  the  other  party  all  the  facts 

106 


AGENCY,  TORT  AND  INDEPENDENT  CONTRACTOR     §153 

as  to  the  scope  of  his  authority,  it  is  the  other's  duty  to  satisfy 
himself  as  to  their  truth.  If  the  agent  expressly  misrepresents 
his  authority,  he  will  be  liable  for  the  results  of  it.  (104  Mass. 
336.)  When  an  agent  conceals  the  fact  of  his  agency,  and  acts 
as  though  he  were  the  principal,  he  binds  himself,  only  (42  111. 
238).  (But  see  §  143-4,  "  Undisclosed  Principal.")  It  is  reason- 
able that  if  an  agent  wrould  avoid  responsibility  he  must  declare 
the  fact  of  his  agency  plainly  and  openly,  and  not  leave  it  to  others 
to  discover.  (39  Vt.  260.) 

152.  ENGINEER  AS  AGENT.  —  As  an  agent  of  the  owner, 
an  engineer  has  certain  duties  to  perform,  since  the  law  implies  a 
promise  from   agents   that  they  will   exercise   competent  skill, 
proper  care  and  diligence  in  the  service  which  they  undertake  to 
perform.     This  duty  to  adhere  faithfully  to  specifications,  or  to 
instructions,  is  a  primary  one,  and  the  agent  is  responsible  for 
any  losses  occasioned  by  a  non-fulfillment  of  his  duties,  either  in 
exceeding,  violating,  or  disregarding  instructions. 

153.  If  an  engineer  assumes  the  responsibilities  of  an  agent, 
what  care  and  skill  are  required  of  him?     If  a  person  offers  his 
services  to  the  community,  or  to  an  individual,  for  employment 
in  any  professional   capacity   (as   a  surveyor,   or  engineer,   for 
instance),  he  impliedly  warrants  in  his  contract  of  employment 
that  he  possesses  that  reasonable  degree  of  skill,  learning,  and 
experience  ordinarily  possessed  by  those  who  profess  the  same  art 
or  calling.     He  also  agrees  that  he  will  use  reasonable  and  ordi- 
nary care  and  diligence  in  the  application  of  his  skill  and  knowl- 
edge to  accomplish  the  purposes  of  the  contract.     But  he  does 
not  warrant  that  he  will  exercise  extraordinary  care  and  diligence, 
nor  that  he  possesses  uncommon  skill. 

It  is  to  be  noticed  that  neither  absolute  accuracy  nor  success  is  to  be 
^aken  as  the  test  for  the  skill  or  capacity  of  one  in  a  professional  line,  since  an 
engineer  does  not  warrant  the  absolute  perfection  of  his  plans  nor  structure 
without  an  express  stipulation  to  that  effect,  any  more  than  a  doctor  guaran- 
tees a  cure.  He  is  chargeable  with  errors  and  their  effects  only  when  such 
could  not  have  arisen  save  through  want  of  reasonable  skill  and  diligence  on 
his  part.  As  a  practical  matter  (for  the  comfort  of  the  engineer),  the  person 
who  asserts  the  want  of  skill  in  the  engineer  must  prove  it  (generally  a  difficult 
thing  to  do). 

The  foregoing  presents  but  a  few  aspects  of  the  highly  impor- 
tant subject  of  Agency,  and  their  treatment  is  extremely  brief. 
The  student  is  urged  to  form  the  habit  of  drawing  upon  his  own 
imagination  or  experience  for  illustrations  of  the  numerous  prop- 

107 


§154  CONTRACTS 

ositions  that  have  been  laid  down  since  it  is  only  thus  that  they 
become  significant.  Want  of  space  has  here  prevented  the 
insertion  of  much  illustrative  material. 

TORTS 

154.  RELATION  OF  COMMON  AND  STATUTE  LAW.  —  It 

has  been  explained  (§  21,  Footnote)  that  the  common  law  is  a 
set  of  principles  established  by  society  for  the  regulation  of 
men's  conduct  in  their  relations  to  one  another.  The  common 
law  is  thus  directly  descended  from  those  customs  which  have 
grown  up  representing  the  notions  of  justice  and  propriety  de- 
veloped in  the  human  race  (especially  the  Anglo-Saxon  branch 
of  it),  finally  crystalizing  into  what  we  familiarly  speak  of  as 
"  law."  The  common  law  is  to  a  very  large  extent  unwritten, 
that  is  to  say,  it  is  not  formulated  and  then  promulgated  by  legis- 
lative enactment.  A  leading  reason  for  this  is  that  it  would  be 
impossible  to  foretell  and  provide  for  the  countless  and  varied 
situations  in  which  civilization  places  individuals.  As  it  is  not, 
for  the  most  part,  found  on  the  statute  books,  the  common  law 
is  effective  through  the  application  of  certain  well-defined  prin- 
ciples, or  rules,  merely.  These  rules  are  of  necessity  extremely 
general  in  their  terms,  and  are  called  into  play  when  the  judges 
believe  them  to  be  applicable  to  the  particular  case  in  hand. 
Thus  "  studying  law  "  consists  largely  in  a  study  of  these  general 
rules  and  principles,  their  analysis,  elucidation,  and  application 
in  the  different  situations  which  have  arisen  in  times  past,  and 
have  been  passed  upon  (adjudicated)  by  the  courts. 

155.  Speaking  generally,  any  or  all  of  the  rules  of  the  common 
law  may  be  enacted  into  statutes  by  the  appropriate  legislative 
body,  if  the  rules  are  susceptible  of  sufficiently  exact  formulation. 
Then,  of  course,  the  terms  of  the  statute  will  take  precedence  over 
the  common  law  rules.     Such  enactments  have  taken  place  to  a 
greater  or  less  degree  in  all  the  States,  and  by  this  method  many 
difficulties  and  inconsistencies  of  the  common  law  have  been 
remedied.     It  will  be  seen,  therefore,  that  where  there  is  a  ques- 
tion as  to  one's  legal  rights,  and  the  case  is  doubtful,  the  only 
safe  way  is  to  ascertain  the  statute,  if  there  is  one ;  if  there  is  no 
statute  on  the  subject,  the  common  law  doctrines  will  always 
apply.     It  should  be  noted,  however,  that  since  the  common  law 
furnishes  the  technical  terminology  of  the  statute  law,  the  old 

108 


AGENCY,  TORT,  AND  INDEPENDENT  CONTRACTOR     §158 

Common  law  doctrines  must  be  called  into  play  to  interpret  the 
statutes  upon  the  same  subjects. 

156.  CONTRACT    AND    TORT    DISTINGUISHED.  —  We 

have 

heretofore  studied  the  doctrines  underlying  the  legal  rights  arising 
under  a  contract.  The  characteristic  feature  of  every  contract 
is  that  the  rights  arise  because  of  a  "  meeting  of  the  minds/'  i.e. 
an  agreement.  Torts,  in  distinction,  do  not  arise  by  reason  of  an 
agreement  made  with  any  one,  but  because  one's  natural  rights,  as 
they  are  called,  have  been  violated. These  natural  rights  are 
common  to  every  member  of  society,  and  are  possessed  by  reason 
of  such  membership.  It  is  fundamental  in  our  society  that  every 
man  has  a  right  to  live  and  to  do  as  he  pleases,  to  accumulate 
property,  and  to  protect  it ;  but  he  must  do  all  these  things  with  a 
reasonable  regard  to  the  rights  of  others,  since  they  too  have  the 
same  privileges.  In  brief,  a  TORT  is  a  pyJYfi^  -™™1  (»*  dis- 
tinguished from  criminal)  injury  to  a  person,  causing  damage  to 
his  health,  body,  reputation,  or  property. 

For  examples :  —  Society  admits  that  I  have  a  right  to  my 
personal  safety  and  freedom;  to  the  society  of  my  family;  the 
right  to  protect  my  reputation;  the  right  to  be  immune  from 
damage  by  fraud,  i.e.  a  right  not  to  be  cheated;  and  in  general, 
I  have  rights  of  possession  in  things  which  belong  to  me.  Any 
un justifiable  infringement  by  another  upon  any  of  these  rights  con- 
stitutes a  tort. 

157.  Compensation  for  tort  is  by  the  infliction  of  a  penalty  or 
judgment  in  money,  called  damages,  providing,  of  course,  actual 
loss  or  damage  can  be  shown  by  the  plaintiff.     To  secure  the 
benefit  of  the  laws  protecting  these  rights  a  great  amount  of  legal 
work  is  done.     As  these  rights  lie  close  to  the  field  of  most  human 
efforts,  the  variety  of  tort  cases  which  may  arise  is  almost  infinite. 
However,  only  a  few  of  the  leading  heads  can  be  touched  upon 
here,  and  these  will  be  selected  with  reference  to  the  duties  of  the 
engineer  and  his  liability  in  tort. 

158.  KINDS  OF  TORT.  —  Perhaps  the  leading  phases  of 
tort  are  instances  where  one's  personal  liberty  or  security  are 
involved,  though  here  the  cases  will  shade  off  gradually  into  the 
realm  of  criminal  law,  foreign  to  our  present  purposes;  the  pro- 
tection of  one's  rights  in  his  reputation,  enforced  by  actions  of 
"  Slander   and   Libel";   and   torts   with   reference   to   rights   in 

109 


§159  CONTRACTS 

property,  often  extremely  important.  It  is  a  point  of  significance 
that  intent  is  not  the  keynote  in  torts  as  it  is  in  criminal  law ;  and 
that  the  word  "  malice  "  has  its  popular  meaning  so  far  extended 
as  to  cover  acts  done  in  total  disregard  of  the  rights  of  others. 

159.  PROXIMATE  CAUSE.  —  It  is  a  fundamental  prop- 
osition, in  torts,  that  "  Every  man  is  presumed  to  have  known 
and  to  have  intended  the  natural  and  reasonable  consequences 
of  his  own  acts."  An  inevitable  corollary  is :  "  Every  man  is  re- 
sponsible for  all  the  consequences  that  could  have  been  foreseen  by 
an  ordinarily  prudent  and  careful  person  as  likely  to  follow  from 
his  acts."  •  To  the  same  effect  is : 

"  A  person  is  responsible  only  for  those  consequences  which 
result  immediately  (i.e.  directly,  not  necessarily  immediate  in 
point  of  time),  from  his  own  acts."  In  legal  phrase,  a  person  is 
responsible  for  results  of  which  he  is  not  the  remote  but  "  proxi 


In  an  old  Massachusetts  case,  there  were  wholesale  druggists  who  sold 
antimony  instead  of  a  manganese  preparation  named  on  the  label  which  the 
package  bore.  After  passing  through  several  hands  it  came  to  the  consumer 
who  made  a  very  unusual  use  of  it,  such  that  the  supposed  manganese  mixture 
exploded  violently,  doing  great  damage.  The  consumer  sued  the  whole- 
salers who  had  misnamed  the  substance,  saying  the  accident  was  their  direct 
fault. 

But  the  Court  held  that  the  use  made  of  the  stuff  was  so  unusual  that  no 
person  could  be  required  to  foresee  such  a  use,  or  so  to  understand  his  respon- 
sibility as  to  be  able  to  guard  against  such  effects.  In  other  words,  though 
the  act  of  the  wholesalers  was  the  direct  cause,  yet  it  was  too  remote  to  render 
them  liable  for  the  chance  effects  of  their  acts. 

It  is  said  that  proximate  cause  is  not  to  be  determined  by  time 
or  distance,  but  by  succession  of  events ;  the  question  is  whether 
there  was  any  intermediate  self-operating  cause  disconnected  with 
the  primary  cause  which  produced  the  injury.  If  there  was  no 
intermediate  cause  the  act  of  negligence  (for  example)  must  be 
considered  to  be  the  proximate  cause  of  all  the  consequences 
arising  therefrom. 

160.  JUSTIFICATION  IN  TORT. —A  man  may  escape 

the  legal  effects  of  his 

acts  which  would  otherwise  be  torts,  in  several  ways,  some  of 
which  are  as  follows :  — 

(1)  He  will  be  justified  by  reason  of  leave  or  license  given  him 
by  the  injured  party.  Thus,  if  a  person  gives  another  permission 
to  pass  and  repass  over  his  land,  then  the  latter  cannot  be  sued 
as  a  trespasser. 

110 


AGENCY,   TORT,   AND   INDEPENDENT   CONTRACTOR  §161 

(2)  Justification  by  legal  authority.     Thus,  a  sheriff  may,  for 
due  cause,  take  possession  of  my  person,  or  of  my  goods.     Were 
it  not  for  the  justification  which  the  law  affords  him,  he  would 
have  committed  a  serious  tort  against  me. 

(3)  Public  policy  justifies  entry  for  the  abatement  of  a  nui- 
sance, when  to  enter  upon  the  land  otherwise  would  be  a  trespass. 
It  is  the  same  if  I  enter  to  recover  my  property  upon  the  land 
of  another ;  or  enter  for  the  purpose  of  doing  business  with  him. 

(4)  Self-defense  is  a  justification  for  the  use  of  force  which 
would  otherwise  be  an  assault.     It  should  be  said,  however,  that 
a  too  severe  repulse  may  be  construed  to  be  an  assault  on  the  part 
of  him  who  was  first  attacked. 

(5)  Inevitable    accident    nullifies    the    theory    of    tort.     We 
have  seen  that  liability  arises  for  those  acts  leading  to  results 
which  could  reasonably  have  been  foreseen.     It  follows  that  there 
is  an  excuse  if  the  result  was  in  the  nature  of  an  unavoidable 
accident  which  could  not  have  been  foreseen.     One  is  not  entitled 
to  remuneration  for  any  injury  which  comes  to  him  through  any 
of  the  ordinary  accidents  of  life,  not  imputable  to  negligence  nor 
to  the  violation  of  law. 

(6)  An  act  of  the  injured  party  may  have  so  contributed  to 
the  injury  that  he  has  himself  principally  to  blame.     Thus  "  con- 
tributory negligence  "  is  a  favorite  defense  in  all  sorts  of  accident 
cases,  and  if  it  can  be  successfully  maintained,  nullifies  the  tort 
action. 

161.   DISCHARGE  OF  TORT.  —  There    are    various    ways 

in  which  the  legal   right 

to  sue  for  damages  in  tort  may  be  discharged,  or  lost.  As  it  is  a 
matter  essentially  personal,  it  is  wholly  within  the  control  of  the 
parties.  Hence  they  may  discharge  the  tort :  — 

(1)  By  agreement.     Here  the  essentials  of  contract  law  must 
be  observed. 

(2)  By  accord  and  satisfaction.     The  parties  do  not  wait  to 
go  to  law,  but  the  wrongdoer  settles  with  the  injured  party  for 
the  injury  suffered,  and  here,  again,  the  elements  of  a  contract 
must  appear. 

(3)  By  a  judgment  rendered  by  a  court  of  competent  juris- 
diction.    Having  once  obtained  a  favorable  judgment,  the  plain- 
tiff cannot  again  go  to  the  Court  with  the  same  set  of  facts  and 
ask  for  another  judgment. 

Ill 


§162  CONTRACTS 

(4)  By  death  of  either  party  the  tort  was   discharged  at 
common  law.     But  by  statute  many  torts  now  survive  the  death 
of   either   party.     Examples    are:    assault,    false   imprisonment, 
damages  to  the  person  (accident  cases),  etc. 

(5)  By  bankruptcy  of  the  wrongdoer.     But  if  a  judgment  has 
been  rendered  against  a  defendant  for  fraud,  or  for  willful  or 
malicious  injuries  to  the  person  or  property  of  another,  then  his 
subsequent  discharge  in  bankruptcy  will  not  discharge  his  obli- 
gation to  pay  that  judgment. 

(6)  By  Statute  of  Limitations.     The  plaintiff  will  lose  the 
right  to  sue  for  a  tort  if  he  waits  for  six  years  (or  whatever  period 
the  particular  statute  requires)  before  beginning. 

SPECIFIC  TORTS 

162.  TRESPASS.  —  An  incident  in  the  ownership  of  real 
estate  is  the  right  to  enjoy  the  sole  possession  of  it.  Thus  every 
invasion  of  property,  be  it  ever  so  slight,  constitutes  a  trespass 
because  the  possession  has  been  interfered  with. 

Suppose  a  contractor  when  working  on  a  street,  deposits  earth  and 
ish  upon  an  adjoining  lot,  and  the 
will  be  liable  to  the  lot-owner  for  a  tres 


rubbish  upon  an  adjoining  lot,  and  thereby  damages  choice  shrubs,  etc.     He 
be  liable  to  the  lot-owner  for  a  trespass. 
In  a  construction  case,  it  was  held  to  be  the  duty  of  the  contractor  to 


ascertain  the  right  of  the  city  to  rest  an  embankment  upon  abutting  premises 
without  the  consent  of  the  owner,  for  this  was  a  trespass. 

When  a  contract  provided  that  waste  earth  should  be  deposited  "where 
ordered  by  the  engineer,"  the  contractor  did  so  but  recovered  damages  from 
the  employer  because  the  contractor  was  found  liable  to  the  lot-owner  since  he 
had  committed  a  trespass  in  making  such  disposition. 

Another  situation  similar  to  a  trespass,  though  not  so  called, 
is  worthy  of  special  attention  from  the  engineer.  A  deep  exca- 
vation is  made  close  up  to  a  property  line  and  causes  a  part  of  the 
adjoining  land  to  move  or  slide  toward  the  hole.  The  law  says 
the  right  to  lateral  support  of  one  man's  land  by  that  of  adjacent 
owners  is  an  incident  of  its  ownership,  so  it  follows  that  any  inter- 
ference with  that  right  is  a  wrong  —  a  tort  —  and  damages  will 
accrue  therefor.  (See  §  210,  Lateral  Support.) 

163.  NUISANCE.  —  A  nuisance  instead  of  being  a  direct 
injury  to  property,  like  a  trespass,  is  an  unlawful  act  done  upon 
other  property  which  causes  injury  or  annoyance  to  a  person  in 
the  enjoyment  of  his  property.  This  unwarranted  violation  of 
another's  personal  right  is  a  tort  of  which  the  law  will  take  notice. 

Examples:  —  Deposition  of  noxious  vapours  or  materials  upon  the  land 
of  another;  polluting  a  water-supply;  letting  water  accumulate  and  stagnate 

112 


AGENCY,  TORT,  AND  INDEPENDENT  CONTRACTOR     §164 

near  another's  premises;  making  unreasonable  and  discordant  noises  at  un- 
seasonable times,  etc. 

To  protect  the  private  rights  of  numerous  persons  (collectively, 
the  public),  the  law  regulates  the  inspection  of  the  sanitary  con- 
ditions of  lodging-houses,  hospitals,  factories,  mines,  cemeteries, 
etc.,  and  will  prevent  the  pursuit  of  any  offensive  business  in 
certain  districts.  (Ill  U.  S.  756.)  It  is  to  be  observed  that  these 
instances  may  frequently  be  torts  against  the  community,  instead 
of  individuals,  hence  the  subject  would  be  more  largely  developed 
if  we  were  discussing  public  nuisances  —  an  important  class  by 
themselves. 

164.  NEGLIGENCE.  —  "  Negligence  is  the  failure  to  observe 
for  the  protection  of  the  interests  of  another  person  that  degree 
of  care,  precaution  and  vigilance  which  the  circumstances  justly 
demand."  Twelve  jurors  chosen  haphazard  from  the  community 
often  determine  whether  "  negligence  "  was  present  in  a  given 
set  of  facts  or  not.  They  are  frequently  persons  lacking  exact 
knowledge  or  severe  mental  training.  It  is  not  surprising,  there- 
fore, that  there  have  been  wide  variations  in  fixing  the  practical 
interpretation  of  the  word.  However,  we  can  at  least  direct  our 
minds  toward  the  tort,  "  Negligence,"  and  learn  the  spirit  of  the 
thing  which  is  to  be  avoided. 

So  far  as  it  is  possible  to  define  it,  the  definition  is,  as  we  have 
seen,  couched  in  general  and  even  vague  terms.  It  may  be  prac- 
tically put  in  the  form  of  a  test-question :  —  "  Did  the  person,  in 
view  of  all  the  circumstances,  use  due  diligence  and  care  to  act 
as  an  ordinarily  prudent  and  careful  person  would  have  acted 
under  the  same  circumstances?"  If  he  failed  to  do  all  this,  then 
there  is  negligence,  and  liability  in  tort  accrues. 

The  leading  uncertainties,  of  course,  are,  what  is  "  due  dili- 
gence "  under  the  particular  facts  of  the  case,  and  also,  what 
degree  of  skill  and  intelligence,  mental  alertness,  foresight  and 
caution  is  to  be  presupposed  in  that  fictitious  personality,  —  "  the 
ordinarily  prudent  and  careful  person." 

To  the  student  of  the  exact  sciences,  the  attempt  to  analyze 
this  situation  may  seem  hopeless.  The  law  books  are  crowded 
with  cases  upon  it,  because  all  accident  cases  are  based  upon  the 
want  of  "  due  care  "  on  the  part  of  one  person,  and  "  negligence  " 
in  another.  Hence  its  importance  to  engineering  students,  as 
future  men  of  affairs. 

113 


§  165  CONTRACTS 

165.  ENGINEER'S  DUTY  AS  TO  NEGLIGENCE.  —  When 
a  person  accepts  an  engagement  to  work,  he  agrees  that  he  has 
the  requisite  skill  and  knowledge  to  do  that  work.     He  agrees 
that  he  will  use  reasonable  care  and  diligence  in  their  application, 
that  he  will  exercise  his  best  judgment,  and  that  he  will  be  honest. 
He  will  be  personally  liable  if  an  injury  results  from  his  negligence 
or  failure  to  perform  any  of  these  conditions.     It  is  immaterial 
how  high  his  standing  may  be,  if  he  has  skill  and  does  not  apply 
it  he  is  guilty  of  negligence,  and  liable  to  those  who  suffer  through 
it.     And  if  he  does  not  possess  the  skill,  he  will  also  be  liable  to 
his  employer  as  upon  a  breach  of  contract,  for  it  was  a  part  of  his 
contract  of  employment  that  he  did  have  the  ordinary  amount 
of  skill  possessed  by  those  in  the  same  profession. 

In  one  case  it  was  held  that  one  who  represented  himself  to  be  a  builder 
with  long  and  wide  experience,  could  be  dismissed  for  incompetence,  and  his 
employer  might  recover  from  him  any  damage  sustained  by  reason  of  his 
deceit,  as  well  as  tort  for  negligence.  It  has  also  been  held  that  engineers 
and  architects  are  responsible  for  defective  and  insufficient  plans,  and  will 
be  responsible  for  neglecting  to  see  that  the  structure  is  at  least  reasonably 
well  built. 

It  has  been  said  that  failure  to  use  skill  is  negligence,  but  if 
the  methods  adopted  are  not  in  accordance  with  the  established 
practice  in  that  profession,  but  are  positively  bad  and  injurious, 
then  the  case  is  not  one  of  negligence,  but  of  want  of  skill. 

166.  Where  damages  have  been  sustained  by  the  owner  by 
reason  of  his  engineer's  negligence,  he  may  set  off  such  sum  against 
the  wages  due  the  engineer.     This  will  also  be  true  when  an 
engineer  is  called  upon  in  his  professional  capacity  to  make  inves- 
tigations, inspections,  or  estimates,  and  either  through  want  of 
skill  or  negligence  upon  his  part,  the  report  or  estimate  is  incorrect. 
He  will  be  responsible  to  his  employer  for  unnecessary  expenses 
or  injury  occasioned  in  this  way.     And  an  engineer  in  the  usual 
construction  job,  where  he  inspects  or  directs  the  inspection,  is 
responsible  for  his  failure  to  give  such  care  and  attention  as  would 
detect  any  important  variation  from  the  plans  and  specifications. 

167.  SOURCES  OF  LIABILITY.  —  In  leaving  this  subject 
of  torts,  it  may  be  said  that  there  are  at  least  three  different  ways 
in  which  liability  may  arise  which  are  of  especial  interest  to 
engineers.     They  are: — 

(a)  By  act  of  the  party,  —  i.e.  by  direct  commission. 

(b)  By   conserit,   that  is,   by  ratification   (see    §  §  141-2)   01 
acquiescence. 

114 


AGENCY,   TORT,    AND   INDEPENDENT   CONTRACTOR  §169 

(c)  By  command,  that  is,  by  acting  through  an  agent. 

(d)  By  instrumentalities.     This   is   important  for   engineers 
and    contractors    especially.     Perhaps    the    typical    illustrative 
case  is  water  stored  in  a  reservoir,  or  impounded  behind  a  dam, 
which  breaks  away,  causing  great  damage.     It  is  the  contractor's 
failure  to  act  which  is  responsible  for  the  damage,  though  the 
damage  arose  through  an  instrumentality  in  his  custody,  namely, 
the  potential  destructive  power  of  the  stored  water.     In  such 
cases  the  contractor  is  bound  to  keep  control  of  the  water,  or  take 
the  consequences  in  damage  suits ;  he  is  said  to  keep  custody  at 
his  peril.     A  close  analogy  is  found  in  the  keeping  of  an  extremely 
fierce  dog.     So  long  as  the  owner  keeps  it  chained  up,  and  away 
from  people,  no  one  can  complain.     But  if  it  breaks  loose  he  must 
settle  for  the  damage  it  does. 

168.  The  storage  and  handling  of  dynamite  and  other  explo- 
sives falls  within  this  category,  also.     So  does  the  damage  done 
in  boiler  explosions,  and  injuries  done  through  the  presence  of 
stray   currents   of   electricity.     Cases   of   electrical   damage   are 
where  water  pipes  adjacent  to  electric  power  stations  are  damaged 
by  electrolysis*,  or  where  a  workman  or  other  person  is  seriously 
shocked,  not  through  contributory  negligence,  but  by  reason  of 
defective  insulation  or  faulty  construction. 

Tort  of  Water  Companies.  —  With  reference  to  the  liability  of 
Water  Companies  for  fire  losses  arising  through  insufficient  water 
supply  or  pressure  at  street  mains,  hydrants,  etc.,  it  is  generally 
held  that  the  Company  is  not  liable,  since  the  contract  they  make 
with  private  customers  or  municipalities  is  not  one  of  insurance, 
but  merely  to  supply  water  in  a  businesslike  and  non-negligent 
fashion.  There  is  sound  policy  in  this  view,  since  the  Water 
Companies  do  not,  nor  are  they  permitted  to,  charge  insurance 
rates,  but  merely  a  reasonable  compensation  for  services  rendered,  f 

169.  RELATION  OF  TORTS  TO  AGENCY.  —  The  law  of 

torts  enters 

into  every  legal  relationship.  Let  us  consider  an  illustration  of 
its  relation  to  the  law  of  agency.  Take  the  agency  principle: 
"  One  who  can  legally  act  for  himself  can  do  the  same  act  through 

*See  Appendix  Note  10.     "  Electrolysis." 

t  There  is  a  very  thorough  article  on  this  topic  in  Municipal  Engineering, 
August,  1909,  p.  97,  discussing  the  variations  in  rulings  of  the  Courts  in 
various  States,  and  citing  probably  several  hundred  cases.  Also  Eng.  Rec. 
Vol.  59,  pp.  233  and  288. 

115 


§  I  70  CONTRACTS 

an  agent,"  and  put  it  beside  the  tort  doctrine:  "  A  principal  is 
liable  for  all  the  acts  of  his  agent  when  they  are  done  within  the 
scope  of  his  employment."  Who  then  is  liable  if  an  agent  com- 
mits a  tort?  Is  he  personally  liable,  or  will  the  doctrine  called 
respondeat  superior  (meaning  that  the  principal  is  responsible 
for  the  acts  of  his  agent)  govern  the  case? 

A  railroad  making  a  grade  crossing  improvement  employs  its  own 
laborers  in  charge  of  an  engineer,  who  is  grossly  negligent  in  providing  suitable 
red  lights,  or  other  danger  signals  at  night.  Some  one  falls  into  the  trench 
and  is  seriously  injured.  Who  is  liable  for  the  damages? 

The  rule  is  that  the  agent  is  not  liable  to  the  injured  person  for  failing  to 
do  his  duty.  Hence  the  railroad  must  settle,  but  it  can  sue  the  engineer 
for  his  negligence,  since  it  is  a  breach  of  his  contract  of  employment,  as  already 
noted.  (See  §  165.) 

It  has  been  shown  that  negligence  is  a  tort.  (§  164.)  Therefore  if  the 
person  injured  is  to  recover  any  damages  it  is  because  he  has  a  right  to  pass 
this  locality  in  safety.  He  whose  negligence  renders  the  place  unsafe  is  guilty 
of  a  tort.  In  this  particular  case  the  same  act  of  negligence  is  also  a  breach 
of  the  contract  between  the  engineer  and  the  Company. 

170.  When  an  agent  commits  a  tort  plainly  within  the  scope 
of  his  employment,  even  by  the  direct  orders  of  his  principal,  he 
thereby  renders  his  employer  liable,  but  he  does  not  himself 
escape  for  that  reason.     His  duty  .to  do  the  right  or  to  refrain 
from  doing  the  wrong  is  no  less  than  that  of  any  other  individual 
simply  because  he  is  some  one's  agent. 

171.  TEST  QUESTIONS.  —  The   real   test   for   ascertaining 
responsibility  in  torts,  whether  principal  and  agent,  either  or 
both,  are  bound,  is :  —  "  Was  the  agent  acting  in  the  way  ordinary 
persons  would  have  acted  in  carrying  out  that  particular  line  or 
piece  of  business?"     "  Was  he  acting  in  a  way  which  the  principal 
could  have  foreseen  when  he  employed  him  as  his  agent?"     "Does 
his  contract  of  employment  necessarily  imply  all  that  the  agent 
in  fact  did?"     If  these  questions  can  be  answered  in  the  affirm- 
ative, then  the  principal  is  liable  for  his  agent's  acts.     If  the 
circumstances  fall  outside  the  rules  just  given,  and  the  act  is  a 
tort,  then  the  agent  is  liable,   but  the  principal  is  not.     The 
greatest  difficulties  in  applying  the  test  questions  will  probably 
be  on  the  question  of  "  scope  of  employment."     (§  §  146-9.)      The 
student  may  also  be  still  further  confused  by  the  fact  that  a  case 
may  easily  fall  within  the  ordinary  powers  of  an  agent  but  not 
within  the  powers  of  the  particular  agent  involved. 


116 


AGENCY,  TORT,  AND  INDEPENDENT  CONTRACTOR     §174 

CONTRACT  PRINCIPLES  INVOLVING  TORTS  AND  AGENCY 

172.  INDEPENDENT  CONTRACTOR.  —  An        important 

subject  which  the 

engineer  needs  to  understand  thoroughly  is  that  of  Independent 
Contractor.  The  principle  may  be  briefly  stated  thus :  — 

Where  one  contracts  with  another  who  exercises  an  independ- 
ent calling,  trade,  or  profession,  by  which  the  second  person  is  to 
do  certain  work  for  the  first,  —  and  the  second  person  is  not  sub- 
ject to  the  other's  control  as  to  the  manner  of  performance,  but 
only  as  to  results  to  be  obtained,  —  then  the  second  person  is 
said  to  be  an  "  independent  contractor"  for  whose  torts  (see  §  156) 
and  those  of  his  servants  the  employer  is  not  liable. 

It  will  appear  at  a  glance  that  this  is  the  status  of  the  person 
ordinarily  known  as  "  the  contractor "  in  engineering  circles. 
The  fact  that  there  is  such  a  legal  relationship,  distinct  and 
separate  from  that  of  agency  (see  §§  132  to  153)  is  the  raison 
d'etre  for  this  whole  text-book,  and  for  the  courses  in  "  Contracts 
and  Specifications  "  given  in  engineering  schools.  It  is  also  the 
fundamental  reason  why  "  contracts  and  specifications "  are 
necessary  in  engineering  construction. 

173.  We  have  seen  that  in  a  pure  agency,  the  principal  has 
complete  control  and  direction  of  the  work  in  all  its  details.     It 
is  also  true  that  by  dealing  with  an  ' '.  independent "  contractor 
owners  seek  to  avoid  all  the  liabilities,  risks,  and  responsibilities 
involved  in  carrying  out  their  undertakings.     In  fact  the  principal 
complexities  of  engineering  contract-writing  (see  Chapter  IX)  arise 
through  a  failure  to  appreciate  and  observe  clearly  the  logical 
distinctions  between  the  status  of  an  agent  and  of  an  independent 
contractor.     For  if  a  contract-writer  seeks  on  the  one  hand  to 
create  the  status  of  independent  contractor  with  all  its  inherent 
advantages  for  the  owner,  and  by  jealously-drawn  and  minute 
provisions  for  the  control  and  direction  of  the  work,  seeks  also  to 
secure  for  his  employer  all  the  advantages  following  upon  the 
relation  of   "  master  and  servant,"  or  simple  agency,  then  his 
path  will  be  an  arduous  one  and  strewn  with  many  practical 
difficulties. 

174.  Mr.  Wait  points  out  that  the  spirit  of  nearly  every 
engineering  contract  is  not  to  make  the  contractor  an  agent,  nor 
a  servant,  but  par  excellence  to  make  him  an  "  independent  con- 


117 


§175  CONTRACTS 

tractor/'  and  subject  to  all  the  liabilities  of  such.  He  further 
cautions  engineers  to  beware  of  taking  too  great  control  of  the 
contractor's  work  even  when  the  specifications  are  most  zealously 
drawn.  Otherwise  it  is  easy  for  the  relationship  of  independent 
contractor  to  be  changed,  waived,  modified,  or  altogether  dis- 
pensed with  by  the  acts  of  the  parties.  Then,  if  difficulties  arose, 
the  law  might  say,  "  Now  we  see  the  relation  of  master  and  ser- 
vant, merely,  and  the  ordinary  rules  of  agency  will  apply."  Hence 
it  may  be  seen  that  the  path  of  him  who  writes  specifications 
( §  §  448  et  seq.)  is  always  narrow,  often  rough,  and  frequently 
obscure. 

175.  To  add    to   the  perplexities,  it  is  the  general  rule  of 
law,  aside  from  engineering  (which  of  course  forms  no  exception), 
that  the  test-question  is,  "  Who  has  control  of  the  work?"     If 
it  is  the  contractor  himself  who  handles  all  the  administrative 
details  of  management,  it  will  be  well.     But  yet,  in  important 
specifications  we  frequently  see  minute  provisions  for  the  duties 
and  privileges  of  the  engineer  governing  the  conduct  and  control 
of  the  work.     In  nautical  phrase,  such  specification  writers  are 
sailing  extremely  close  to  a  lee  shore.     A  more  extensive  dis- 
oussion  of  the  problems  met  in  contract-writing  will  be  found  in 
Chapter  IX.* 

176.  IMPORTANCE  OF  DOCTRINE  TO  ENGINEERS.  — 
We  have  sought  to  show,  heretofore,  that  the  spirit  of  the  whole 
body  of  Agency  law  is  found  in  the  classic  maxim,  "  Qui  facit  per 
alium  facit  per  se}})  meaning,  "  He  who  acts  by  another  acts  him- 
self."    This  proposition  has  a  wide  scope  and  often  furnishes  the 
solution    to    complicated    questions    of    agency.     Instances    are 
common  where   accidents   have   happened   through    some  one's 
negligence,  as  on  construction  work  done  by  a  contractor.     The 
latter  would  perhaps  be  only  too  glad  to  lay  the  responsibility  on 
the  owner,  or  his  agents,  while  the  owner  in  turn  will  try  to  show 
that  the  tort  arose  through  the  "  independent  "  contractor.     The 
independent  contractor  doctrine  is  evidently  sound  and  just,  and 
is  thoroughly  established.     The  engineer  who  tries  to  write  the 
contract  and  its  specifications  so  as  to  stand  upon  both  sides  of 
the  high  fence  dividing  servants  from  contractors   (as  already 
noted,  see  §  174),  is  the  man  who  is  in  an  awkward  position. 

*  See  Wait,  Eng.  &  Arch.  Jurisp.,  Arts.  651-58,  incl.  for  .an  elaborate 
treatment  of  independent  Contractor. 

113 


AGENCY,    TORT,    AND    INDEPENDENT   CONTRACTOR  §178 

177.  EXCEPTIONS   TO    THE    RULE.  —  On    a   preceding 
page  the  basic  rule  was  laid  down  that  for  the  torts  of  an  independ- 
ent contractor  the  principal  is  not  liable.     Though  this  is  true, 
yet  an  engineer  should  know  that  the  rule  has  important  quali- 
fications.    Suppose  Y,  a  contractor,  is  employed  by  X,  a  land- 
owner, to  construct  a  sewer  across  Z's  adjacent  land,  though  X 
has  no  right  whatever  so  to  cross  Z's  land.     Can  X  excuse  him- 
self  from   damages   on   the   contractor   doctrine?     Plainly   not. 
Thus  exception  (1):    If  X  employs  Y,  a  contractor,  to  do  that 
which  damages  Z,  X  is  liable.     It  appears  that  Y  may  be  liable 
too,  if  the  act  was  a  tort  in  itself,  as  previously  stated. 

Again,  suppose  Z  is  a  maker  of  transits.  His  shop  is  near  X's 
land ;  in  the  shop  an  extremely  delicate  dividing-engine  is  mounted 
on  a  masonry  pier  carried  to  bed  rock.  X  engages  in  building 
operations  on  his  lot,  and  is  obliged  to  use  heavy  charges  of  ex- 
plosive in  the  same  ledge  which  carries  Z's  pier,  injuring  the  pier 
and  the  dividing-engine  seriously.  Can  X  shield  himself  behind 
the  contractor  doing  the  work,  when  Z  sues  him  for  damages? 
No,  this  would  clearly  be  inequitable.  Hence,  exception  (2) :  If 
X  employs  Y  to  produce  a  given  result,  and  the  only  means 
thereto  are  necessarily  injurious  to  a  third  person,  X  is  then  liable. 

Further,  suppose  you  are  a  surveyor  with  wide  experience  and 
high  reputation,  by  reason  of  which  Z  brings  you  work  which  is  to 
have  your  personal  attention.  To  avoid  delay  through  press  of 
business,  you  turn  the  work  over  to  Y  who  is  a  skilful  surveyor, 
but  of  lesser  reputation.  You  release  all  control  of  the  work,  and 
merely  look  to  him  for  results.  Through  a  gross  blunder,  an  im- 
portant line  is  wrongly  established,  your  client  suffers  serious  loss 
and  thereupon  sues  you  for  damages.  Are  you  shielded  by  Y? 
This  illustrates  exception  (3)  that  "  If  X  is  under  a  duty  to  Z 
and  employs  Y  to  perform  it,  X  is  liable  for  Y's  failure." 
(Mechem,  Agency,  Sees.  747-8.) 

178.  WAIT,     ON      INDEMNITY      AND      INSURANCE 
CLAUSES.  —  The  foregoing  gives  point  to  the  remarks  of  Mr. 
Wait  under  "  Indemnity  Clauses/'  showing  certain  present-day 
tendencies  producing  great  hardships  to  the  contractor. 

"It  has  been  the  practice  to  make  him  liable  for  injuries  to  persons  and 
property  resulting  from  his  operations  in  the  erection  of  structures;  also  to 
make  him  liable  for  acts  of  negligence  of  himself  and  employees.  Ordinarily 
the  indemnity  should  be  limited  to  the  willful,  negligent,  and  malicious  acts 
of  the  contractor.  He  should  not  be  liable  to  the  owner  for  personal  01 

119 


§179  CONTRACTS 

property  damages  of  other  persons  which  are  the  natural  results  of  the  under- 
taking, and  could  not  have  been  avoided,  even  with  the  exercise  of  due  care 
by  the  contractor." 

"Under  the  general  clause  making  the  contractor  liable  for  the  misconduct 
of  himself  and  employees,  engineers  and  their  employers  have  undertaken 
to  shift  upon  him  damages  and  injuries  of  every  kind  and  from  whatever 
cause.  In  one  case  a  municipality  endeavored  to  hold  a  contractor  respon- 
sible to  a  mill-owner  for  diverting  water  from  a  stream  into  the  intercepting 
sewer  being  built.  The  damage  was  not  in  any  way  caused  by  negligence  or 
misconduct  of  the  contractor,  but  resulted  necessarily  from  the  undertaking. 
It  was  held  that  the  city,  only,  was  liable." 

This  case  will  be  seen  to  fall  under  exception  (1)  on  the  pre- 
ceding page.  "  The  modern  tendency  seeks  to  make  the  con- 
tractor an  insurer  against  all  possible  risks  arising  during  con- 
struction, and  also  to  make  him  assume  responsibility  for  the 
results  of  erection,  completion,  and  operation  of  the  works  under- 
taken. If  it  is  the  intention  of  the  parties  to  have  the  construction 
contract  one  of  insurance  also  (or  indemnity)  it  should  be  made 
very  clear  to  the  contractor  that  this  is  desired,  when  he  in  turn 
may  add  the  necessary  premium  rates  to  the  regular  price  of  the 
work.  And  it  is  not  to  be  expected  that  such  premiums  will  be 
small/'* 

He  further  says  that  the  questions  as  to  what  creates  the 
relation  of  master  and  servant,  and  what  is  necessary  to  establish 
the  status  of  independent  contractor,  are  often  difficult  to  deter- 
mine. "  There  is  irreconcilable  conflict  in  the  decisions,  and  no 
general  rule  can  be  laid  down.  Each  case  must  be  decided  upon 
its  own  peculiar  facts.  This  is  certain,  however,  that  the  respon- 
sibility grows  out  of,  is  measured  by,  begins  and  ends  with,  the 
control  of  the  parties  doing  the  injury.  If  it  is  the  owner's  duty 
to  control  them  in  what  they  do,  he  is  responsible  for  their  neglect ; 
but  if  this  is  not  so  they  are  not  his  servants.  An  exception  is 
where  by  subsequently  adopting  and  sanctioning  these  acts,  he 
renders  himself  legally  a  participator  in  them."  "  The  one  who 
stands  in  the  relationship  of  master  to  the  wrongdoer  is  liable, — 
he  who  had  selected  him  as  servant,  from  the  knowledge  and 
belief  in  his  care  and  skill,  he  who  could  remove  him  for  miscon- 
duct, and  the  one  whose  orders  he  was  bound  to  receive  and  obey, 
—  this  is  the  person  who  should  be  responsible." 

179.  Relation  to  Contract- Writing.  —  "  In  drafting  an  en- 
gineering contract  great  care  must  be  taken  to  leave  the  mode 
and  manner  of  performing  the  work,  the  hours  and  the  days 

»  Waddell  &  Wait,  Spec,  and  Cont.,  p.  159. 

120 


AGENCY,    TORT,    AND    INDEPENDENT    CONTRACTOR  §179 

that  the  work  shall  be  carried  on,  the  means  by  which  it  is  to  be 
executed,  and  the  persons  by  whom  it  is  to  be  done,  to  the  con- 
tractor. If  by  the  terms  of  the  contract  the  owner  or  employer 
retains  the  power  to  select  and  discharge  the  workmen,  and  can 
control  them  in  the  discharge  of  their  duties,  can  hold  them 
responsible  and  direct  them  as  to  the  mode  and  manner  in  which 
they  perform  their  duties,  they  may  justly  be  regarded  as  agents 
and  servants  of  the  owner  or  company,  and  he  (it)  is  responsible 
for  their  misconduct  and  negligence.  (126  N.  Y.  j05.) 

"  The  fact  that  a  contractor  is  paid  by  the  job  does  not  make  him  an  inde- 
pendent contractor  if  he  is  at  all  times  subject  to  the  control  of  the  owner 
and  works  in  the  manner  the  employer  directs,  and  employs  such  men  as  the 
owner  directs.  (68  N.  W.  Rep.  46.)  When  one  undertook  to  complete  a  job 
that  had  been  abandoned  by  another  contractor,  and  was  to  receive  the  cost 
of  labor  and  materials  furnished,  plus  ten  per  cent  additional,  he  was  held  to 
be  an  independent  contractor  and  not  a  servant. 

"  The  character  and  difficulty  of  engineering  works  render  it 
desirable  that  the  owner  should  retain  a  general  direction  and 
supervision  of  the  work,  and  the  courts  have  permitted  this 
to  a  greater  extent,  probably,  than  in  any  other  business.".  (Wait, 
Eng.  &  Arch.  Jurisp.  Sees.  652-9.) 


121 


QUESTIONS 

Questions,  Chapter  IV 

AGENCY,  TORT,  AND  INDEPENDENT 
CONTRACTOR 

1.  Define   the   relation   of   agency.     Who   may   be   an   agent1? 
Agency  proved  how? 

2.  Distinguish  between  "  attorney  in  fact  "  and  agency  by  impli- 
cation. 

3.  Define  "  implied  authority  "  of  an  agent.     What  is  the  test? 

4.  What  burden  is  on  him  who  deals  with  an  agent?     Agency 
created  how? 

5.  What  is  the  rule  as  to  delegation  of  authority?     How  modified 
in  engineering  work?     Why? 

6.  How  can  you  tell  whether  or  not  authority  may  be  delegated? 

7.  In  agency  what  is  the  doctrine  of  liability  by  "  holding  out  "? 

8.  What  defines  the  extent  of  an  implied  agency? 

9.  Define  ratification.     When  may  an  act  be  ratified? 

10.  Who  cannot  ratify?     Why  is  this?     Illustrate. 

11.  What  are  the  essentials  of  ratification?     Why  must  some 
ostensible  principal  be  specified? 

12.  Outline  the  doctrine  of  "  undisclosed  principal."     What 
is  its  object? 

13.  Explain    assignment    of   contracts.     Why    are   safeguards 
required  to  restrict  it? 

14.  What  is  the  fundamental  rule  as  to  assignments?     Effect  of 
an  assignment? 

15.  What  is  the  first  test  question  as  to  scope  of  an  agent's 
authority? 

16.  What  is  meant  by  incidental  powers?     What  is  the  part 
played  by  custom  and  usage? 

17.  When  may  powers  not  expressly  given  nor  conferred  by  cus- 
tom and  usage  be  implied  against  the  principal? 

18.  What  quality  of  service  does  an  agent  owe  his  principal? 
Illustrate. 

19.  What  are  the  agent1  s  duties  as  to  handling  money  and  giving 
notices  relative  to  his  agency? 

20.  What  is  the  rule  as  to  instructions,  secret  or  otherwise? 

21.  When  is  an  agent  responsible  to  third  persons? 

22.  Suppose  an  agent  misrepresents  the  extent  of  his  authority ,-~ 
what  result? 

123 


CONTRACTS 

23.  How  may  an  agent  ALWAYS  relieve  himself  of  responsibility? 

24.  Name  some  of  the  duties  which  an  engineer  performs  as  an 
agent. 

25.  When  a  professional  man  contracts  for  employment,  what 
does  he  warrant  to  be  true? 

26.  With  what  errors  and  results  is  he  chargeable? 

27.  What  does  he  NOT  warrant  in  such  a  contract  of  employment? 

28.  State  briefly  your  conception  of  the  common   law;  of  the 
"  unwritten"  law. 

29.  What  is  the  relation  between  common   law  and  statutes? 
Tlieir  relative  weights,  and  the  applicability  of  each? 

30.  Distinguish   between   torts   and   contracts.     What   are   the 
"  natural  rights  "? 

31.  What  is  meant  by  "  proximate  cause  "f     Give  an  original 
illustration. 

32.  Explain  "  justification  "  in  tort. 

33.  Illustrate  the  rule  that  inevitable  accident  may  serve  as  a 
justification. 

34.  Recite  upon  contributory  negligence. 

35.  Name  the  three  leading  ways  in  which  a  tort  may  be  dis^ 
charged. 

36.  Explain  meaning  and  effect  of  the  Statute  of  Limitations. 

37.  Define  trespass.     Is  there  more  than  one  kind?    If  so,  illus^ 
trate. 

38.  What  is  a  nuisance?     What  is  the  basis  of  the  tort? 

39.  Define  negligence.     Who  determines  its  existence  in  a  given 
case? 

40.  What  are  the  test  questions  for  the  detection  of  negligence? 

41.  What  are  some  of  the  engineer's  duties  as  to  negligence? 

42.  What  are  the  principal  sources  of  liability  in  tort? 

43.  Give  an  original  illustration  of  a  tort  arising  through  instru- 
mentalities. 

44-   Summarize  the  statements  in  reference  to  electrolysis. 

45.  For  what  torts  is  a  water  company  liable?     What  reasons 
for  your  answer? 

46.  Explain  carefully  what  is  meant  by  tl  respondeat  superior." 

47.  What  are  an  agent's  responsibilities  with  reference  to  torts? 

48.  How  will  you  tell  whether  the  principal  or  agent}  or  both, 
are  liable  in  tort? 

49.  What  is  embraced  in  the  phrase  "  Scope  of  employment  "? 

124 


QUESTIONS 

50.  What  is  an  "  independent  contractor  "? 

51.  Explain  the  relation  of  independent  contractor  doctrines 
to  this  text  and  to  this  course. 

52.  Wherein  are  the  principal  difficulties  in  engineering  con- 
tract-writing?    How  do  they  arise? 

53.  What  is  the  difference  between  the  responsibilities  of  a  ser- 
vant or  an  agent,  and  of  an  independent  contractor? 

54-    What  is  the  aim  of  all  engineering  contracts?     Give  reasons 
for  your  answer. 

55.  How  may  an  engineer  inadvertently  waive  the  rights  of  his 
employer  when  dealing  with  a  contractor?     With  what  results? 

56.  What  is  the  test  for  determining  whether  one  is  an  independent 
contractor,  or  a  servant? 

57.  What  one  principle  underlies  the  whole  body  of  agency  law? 

58.  Give  an  instance  where  an  employer  will  be  liable  for  the 
acts  of  an  independent  contractor. 

59.  Suppose  a  contractor  employs  methods  necessarily  injurious 
to  a  third  person.     Who  must  settle  for  the  damage  done?     Why? 

60.  State  the  third  exception  to  rule  of  liability  of  independent 
contractor. 

61.  Summarize     Mr.     Wait's     remarks     under     "Indemnity 
Clauses  " 

62.  What  can  you  say  about  treating  a  construction  contract  as 
one  of  insurance? 

63.  Is  one  who  works  "  by  the  job  "  an  independent  contractor? 
Discuss  the  general  aspects  of  such  a  situation. 

64'    How  is  the  independent  contractor  doctrine  regarded  in 
engineering  jurisprudence?     Why  is  this? 


125 


CONTRACTS 

General  Review  Questions  and  Problems  on 
Chapters  I -IV 

1.  A  is  ike  purchasing  agent  for  ihe  city  of  M.  and  in  his  own 
name  makes  a  contract  with  X  for  a  car-load  of  sewer  pipe,  X  being 
unaware  that  A  is  such  an  agent.      Upon  learning  of  the  agency  he 
(X)  concludes  he  should  have  charged  more.     Can  A  enforce  the 
contract?     Why?     Is  this  a  case  of  -undisclosed  principal? 

2.  A  is  the  agent  of  S  and  has  extensive  dealings  with  X  in  this 
capacity.     A  is  discharged  by  S  but  continues  to  deal  with  X  as 
though  he  were  still  S's  agent.     What  are  the  rights  of  the  parties 
under  such  a  contract? 

3.  P  is  the  owner  of  several  plants  for  the  making  of  concrete 
blocks  and  A  is  placed  in  charge  of  one,  with  instructions  to  hire 
30  men  only.     He  does  in  fact  hire  33.     Who  should  pay  the  wages 
of  these  three  workmen?     Why? 

4.  (a)  A  was  paid  in  advance  for  high  carbon  steel  of  a  specified 
quality,  which  he  was  to  ship  to  B  as  soon  as  it  could  be  made.      Upon 
receiving  the  metal  B  tested  it  and  found  that  it  was  not  up  to  speci- 
fications.    Therefore  he  refused  to  accept  and  sued  for  a  return  of 
the  purchase  price.     Should  he  recover?     (b)   Slip  pose  the  metal 
to  have  been  shipped  by  sea,  by  the  S.  S.  Line  named  by  buyer,  biit 
that  the  vessel  was  wrecked,  and  the  cargo  lost.     In  case  B  sues  for  a 
return  of  his  money,  should  he  win?     What  facts  must  he  establish? 

5.  Suppose  that  the  charter  of  a  city  provided  that  all  contracts 
relating  to  the  construction  or  repair  of  streets  should  be  made  by  the 
Board  of  Public  Works  only.     A,  who  owns  an  asphalt  repair 
plant,  is  engaged  by  the  City  Engineer  to  patch  numerous  street  sur- 
faces. 

(a)  Can  A  recover  as  per  the  agreement  made  with  the  Engineer? 
Why? 

(b)  Suppose  A  has  spent  a  large  sum  in  doing  the  work,  do  you 
think  he  can  recoup  himself  in  any  way?    If  so,  how? 

6.  Enumerate  the  essential  elements  of  fraud,  and  tell  why  each 
must  be  found  to  establish  a  suit  for  damages. 

7.  Name  the  classifications  under  "  Unreality  of  Consent  "  as 
affecting  contracts ,  and  indicate  briefly  the  circumstances  where  each 
arises. 

8.  When  will  inadequate  consideration  invalidate  a  contract? 
Illustrate.     What  is  the  position  of  the  courts  in  this  matter? 

9.  A  agreed  to  plaster  B's  house,  but  before  completing  the  job 
the  house  was  completely  burned.     What  are  A's  rights?     Discuss 
briefly. 

10.  A  pays  B  $800  for  a  narrow-gage  dinkey  engine  in  the 
belief  that  it  is  standard  gage,  which  alone  is  suited  to  his  purpose. 

(a)  Can  A  recover  the  money,  and  if  so,  upon  what  grounds? 

126 


QUESTIONS 

(b)  Suppose  B  had  intentionally  concealed  the  fact  of  gage. 
What  result? 

(c)  Suppose  B  had  innocently  failed  to  state  the  gage,  assuming 
that  "  of  course  "  A  knew.     How  do  the  parties  stand? 

11.  Cite  four  examples  of  contracts  opposed  to  the  common  law, 
and  discuss  briefly  and  in  a  general  way  the  topic  of  "  Illegality" 

12.  (a)  A  agreed  to  pay  $1,000  for  a  patent  which  B  was  about 
to  take  out,  but  B  died  before  it  was  perfected.     Can  B's  estate  force 
A  to  pay  the  $1,000?     Give  your  reasons  in  answering. 

(b)  Suppose  A  had  paid  the  money  in  anticipation,  but  B  died 
as  above.  Can  A  recover  the  money?  State  carefully  why  or  why 
not. 

13.  Give    an    illustration    of    technical   misrepresentation    in 
making  a  contract.     Tell  its  exact  effect  upon  the  contract. 

14.  Name  the  four  essentials  to  a  valid  contract,  and  recite  as 
far  as  possible  upon  the  topic  "  consideration." 

15.  "  Qui  facit  per  alium  facit  per  se," — Translate,  and  recite 
upon  it. 

16.  When  a  contract  is  made  with  an  agent,  what  precautions 
must  be  taken? 

17.  What  is  meant  by  a  (<  void  contract"?     Explain  "void- 
able." 

18.  An  important  witness  in  a  lawsuit  is  offered  $500  to  stay 
away  during  the  trial,  and  does  so  by  leaving  the  State.     Later  he 
seeks  to  enforce  the  contract  against  the  attorney  who  made  him  the 
offer.     Can  he  recover?     Give  reasons. 

19.  When  is  an  express  contract  completed?    Is  the  rule  of 
universal  application? 

20.  A  contracting  company  has  built  a  large  dam  with  the  under- 
standing  that  a  manufacturing  company  will  buy  it  and  ike  water- 
privilege  upon  completion  of  dam.     The  price  is  to  be  $10,000,  but 
after  completion,  though  before  any  papers  are  passed,  the  dam  is 
carried  away  by  a  phenomenal  freshet.     Builders  site  Mfg.   Co. 
for  $10,000.     Can  they  recover?     Why? 

21.  What  is  an  acceptance,  when  necessary,  and  how  made? 

22.  In  your  contractual  relations  with  *  *  *  *  College,  state 
what  the  consideration  is  on  both  sides. 

23.  An  offeree  writes,  in  respect  to  a  previous  offer,  "  I  accept 
your  terms,  but etc."     Is  there  a  contract  made?     Why? 

24-  A  contractor  agrees  to  build  a  wall  of  reinforced  concrete, 
as  per  plan,  furnishing  all  materials.  Later  he  refuses  to  furnish 
steel  rods  enough,  because  of  their  high  price.  Upon  your  objection, 
he  finally  agrees  to  finish  up  as  per  contract  if  you  will  give  him 
$50  for  the  last  rods,  which  you  say  you  will  do.  Upon  completion 
he  sues  you  for  the  extra  $50.  Can  he  recover?  Why? 

127 


CONTRACTS 

25.  Into  what  class  of  contracts  will  your  relationship  to  *  *  * 
College  fall?    In  this  contract,  point  out  the  offer,  and  state  the  facts 
that  constitute  the  acceptance.     Analyze  the  situation  and  show  the 
facts,  acts,  or  implications  which  go  to  make  up  the  mutual  promises 
or  consideration. 

26.  A  contractor,  wishing  to  secure  a  large  paving  contract, 
offers  to  pay  his  competitors  $100  each  if  they  will  refrain  from  bid- 
ding, which  they  do.     Later  they  sue  him  upon  this  agreement.     Can 
they  recover?     Why,  or  why  not? 

27.  Tell  what  you  understand  by  "  mutual  promises." 

28.  What  is  meant  by  "  liquidated  damages  "? 

29.  What  is  the  object  of  the  abrogation  or  cancellation  clause  in 
a  contract? 

30.  "  Lex  loci  rei  sitae,"  —  Explain  carefully. 

81.  State  the  gist  of  a  proper  payment  clause  in  an  engineering 
contract. 

32.  In  what  way  may  alterations  be  made  in  a  contract? 

33.  What  is  the  status  of  a  contract  made  with  an  unauthorized 
agent? 

34.  What  constitutes  an  "  express  "  contract? 

35.  What  is  meant  by  "  damages  "  under  a  contract?     When 
are  they  recoverable,  and  by  whom? 

36.  What  is  meant  by  a  gratuitous  promise?    Illustrate. 

37.  A  writes  to  B  offering  to  sell  him  50  barrels  of  tar  for  water- 
proofing at  $2.50  per  barrel.     On  the  same  day,  but  in  ignorance  of 
this  offer,  B  writes  A  saying  he  is  in  the  market  for  50  barrels  tart 
and  that  he  is  willing  to  pay  $2.50  per  barrel  for  it.     Without  further 
steps,  is  there  a  binding  contract  between  them?     Was  there  an  offer 
and  acceptance,  and  a  genuine  "  meeting  of  the  minds  "? 

38.  A  mails  a  letter  to  M  accepting  an  offer  from  him,  but  a  few 
hours  later,  finding  that  the  contract  will  not  be  advantageous  to  himf 
A  sends  a  telegram  witMrawing  and  declining  the  offer.     Can  A  be 
held  to  the  contract?     Look  at  this  in  connection  with  the  Massa- 
chusetts rule  that  the  acceptance  must  be  received  by  offer  or  to  be  bind- 
ing, and  note  that  the  telegram  is  received  before  the  letter,     (b)  Con- 
sider the  case  as  occurring  outside  of  Massachusetts. 

39.  A  makes  an  offer  and  in  it  states  that  an  acceptance  is  to  be 
mailed  but  that  it  shall  not  be  binding  until  it  is  received.     Is  such 
a  condition  binding?     Does  this  appear  to  be  a  valid  condition  prec- 
edent, and  if  so,  what  is  its  effect?     (130  Mass.  173.) 

40.  A  offers  to  sell  a  certain  piece  of  land  for  $1,000.     B  makes 
a  counter  offer  to  purchase  for  $750,  but  A  declines  this.     Later  B 
changes  his  mind  and  concludes  to  accept  A's  offer  to  sell  for  $1,000, 
but  now  this  is  declined  by  A.     Has  B  any  right  against  A  by  which 
he  can  make  A  accept? 

128 


QUESTIONS 

4!.   Define  "  Negligence." 

42.  How  does  liability  for  torts  arise? 

43.  What  objects  are  sought  in  developing  the  "  Independent 
Contractor  "  doctrine? 

44-   What  is  the  fundamental  maxim  of  the  law  of  agency? 

45.  Define  "  proximate  cause."     Where  and  when  is  the  ruk 
applied? 

46.  What  is  "  Ratification  "? 

47.  What  law  governs  a  contract? 

48.  What  are  dominant  and  servient  estates? 

49.  How  may  a  contract  be  discharged? 

50.  What  is  the  difference  between  express  and  implied  con- 
tracts? 

51.  What  is  meant  by  (l  condition  precedent"?    Its  relation  to 
the  contract? 

52.  A  and  B  have  the  boundary  line  between  their  lots  sur- 
veyed and  marked.     They  acquiesce  in  the  line.     Five  years  later 
A  finds  that  by  a  mistake  the  line  was  located  so  that  his  lot  is  five 
feet  too  narrow.     Can  he  have  the  line  changed? 

53.  A  contract  provided  for  erecting  an  apartment  house  180  feet 
high  for  $50,000.     The  structure  was  completed,  but  while  $10,000 
were  still  due  on  it,  a  statute  was  found  forbidding  the  erection  of 
any  building  over  150  feet  high.     Thereupon  the  owner  refused  to  pay 
the  balance.     What  were  the  contractor's  rights? 

54>   What  are  the-  leading  grounds  of  illegality  to  be  avoided  in 
making  engineering  contracts? 

55.  Explain  carefully  how  custom  is  a  source  of  law.     Can  you 
tell  why  this  is  true? 

56.  Discuss  adjudication  of  former  cases  as  a  source  of  law. 
Why  is  this  practice  useful  and  necessary? 

57.  What  is  a  statute?    By  whom  made? 

58.  Explain  what  is  meant  by  delegation  of  authority?    When 
permissible? 

59.  Is  contracts  a  common-law  or  statutory  subject?     Give  your 
reasons. 

60.  Suppose  you  are  authorized  to  say  that  a  building  contract 
is  properly  performed.     Can  you  bind  the  owner  by  adding  certain 
terms  to  the  contract  and  getting  them  performed  by  the  contractor? 
Tell  what  principles  are  involved. 

61.  (a)  Suppose  a  traveling  salesman  is  employed  to  visit  the 
trade  in  outlying  districts,  and  hires  a  team  to  transport  himself  from 
place  to  place.     Is  the  firm  chargeable  with  the  livery  bill?    Why, 
or  why  not? 

129 


CONTRACTS 

(b)  State  carefully  the  principles  involved  here,  tell  what  sort 
of  contracts  were  made,  if  there  were  any. 

62.   Discuss  the  phrase,  "  The  unwritten  law.11 

68.  How  is  an  agency  created?  Who  may  be  a  principal,  and 
who  an  agent? 

64.  "  Time  is  of  the  essence  of  every  engineering  contract"  — ex- 
plain carefully  the  meaning  of  this  phrase. 

65.  A  Steamship  Co.  enters  into  an  agreement  with  X  &  Co., 
coal  dealers,  for  supplying  them  with  coal  for  its  vessels  during  the 
year.     They  receive  coal  front  January  1  to  August  1  of  that  year, 
when  the  S.  S*  Co.  sells  its  vessel  and  refuses  to  take  any  more  coal. 

(a)  Can  X  &  Co.  make  them  take  the  coal  for  the  rest  of  the  year? 

(b)  Can  X  &  Co.  recover  damages,  and  stop  delivering? 

66.  Suppose  you  are  running  a  surveying  office,  and  while 
working  on  Broadway  a  rimaway  horse  knocks  over  your  transit, 
causing  $50  damage.     It  appears  that  your  instrument-man  was 
negligently  at  a  distance  from  the  transit  at  the  time  of  the  accident, 
and  was  otherwise  engaged  on  his  own  matters;  that  the  horse  was 
hitched  to  an  ordinary  drop-weight  used  by  grocers1  men;  that  he  was 
frightened  by  a  particularly  noisy  automobile  driven  with  reckless- 
ness by  A,  the  chauffeur  of  P.     What  are  the  remedies  of  the  respec- 
tive persons? 

67.  J  sued  a  R.R.  Co.  for  injuries  sustained  by  reason  of  a 
defective  bridge.     A  R.R.  Supervisor  had  heard  of  the  defect,  a  mere 
riimor,  but  negligently  omitted  to  either  verify  the  rumor  or  report 
to  the  company.     Can  J  recover  damages?    Reasons? 

68.  Give  the  leading  rules  as  to  responsibility  in  tort.     Illus- 
trate what  is  meant  by  "  instrumentalities." 

69.  S  was  awarded  damages  from  a  gas  company  for  injuries 
due  to  an  explosion  due  to  a  gas- leak.     The  gas  company  in  turn 
sues  an  Electric  Railway  Company  claiming  the  leak  was  due  to 
electrolytic  action  upon  their  pipes  by  stray  currents  from  the  railway. 
Should  they  recover? 

70.  Referring    to    contracts,    what    is    meant    by    "  waiver "? 
"  Breach,"  —  tell  what  it  is,  the  questions  presented,  and  its  effect. 

71.  P  owned  and  wished  to  dispose  of  an  automobile  in  which 
there  was  a  serious  defect.     He  instructed  his  chauffeur  to  sell  the 
machine,  and  after  carefully  explaining  the  defect  told  him  to  point 
it  out  to  the  purchaser.     The  chauffeur  sold  to  T,  not  only  omitting 
to  disclose  the  defect  but  representing  that  the  machine  was  perfect 
and  in  -first-class  condition.     Can  T  do  anything  about  the  matter? 
What,  and  why? 

72.  (a)  A  writes  to  the   Universal  Cement  Co.  saying  he  will 
take  100  barrels  of  their  cement  at  $2.50  barrel.    Is  there  a  contract? 
Why? 

130 


QUESTIONS 

(b)  Suppose  that  previous  to  this  the  Universal  Co.  had  quoted 
him  with  price  $2.70  per  barrel.  Is  there  a  contract  now?  Why? 

73.  A  offers  by  letter  to  sell  a  hoisting-engine  (second-hand) 
to  B  for  $400.  B  replies  that  he  will  give  A  $400  for  the  engine  if 
he  will  first  put  it  into  thorough  repair.  Was  there  a  contract?  If 
not,  why? 

74-  X  telegraphs  to  Y  to  ship  him  a  100  k-w  generator  at  once. 
Later  in  the  same  day  he  telegraphs  withdrawing  the  order,  but  the 
second  telegram  is  so  delayed  in  transmission  that  the  dynamo  has 
been  forwarded.  Can  Y  make  X  take  and  pay  for  the  machine? 
Give  your  reasons. 

75.  A,  who  is  a  lumber  dealer,  contracts  to  deliver  a  cargo  of 
lumber  on  board  a  certain  vessel  within  ten  days.     He  began  the 
delivery  but  a  sudden  heavy  frost  made  it  impossible  to  navigate  the 
canal  by  which  the  lumber  came  from  the  mills  to  the  shipping  point. 
For  this  reason  the  cargo  was  delayed  20  days.     Does  this  delay 
render  A   liable  in  a  suit  for  damages  sustained  by  reason  of  it? 
Give  your  reasons  fully. 

76.  C  gives  a  bond  for  $5, 000  as  a  guarantee  that  B  will  faithfu  lly 
perform  a  contract.     Later  B  and  the  owner  agree  upon  a  more 
expensive  design  and  change  the  plans  without  consulting  C.     Fin- 
ally B  fails  to  fulfill  his  contract.     Will  C  be  held  liable?     Discuss 
tlie  situation. 


131 


CHAPTER  V 
REAL   PROPERTY 

This  chapter  defines  the  general  term  "Realty,"  its  subdivisions  into  Land 
and  Water,  and  the  degrees  of  ownership  which  a  person  may  have  in 
each,  including  a  brief  discussion  of  the  rights  in  subterranean  and  surface 
water,  water  courses,  and  in  "fixtures"  to  land. 

Then  the  nature  of  the  various  "estates"  in  land  is  sketched,  —  as 
fee  simple,  life  estates,  easements,  etc.  An  outline  is  given  of  the  methods 
by  which  title  to  land  may  be  acquired,  —  as  by  prescription,  adverse 
possession,  deed  dedication,  and  eminent  domain,  — and  the  contractual 
elements  underlying  the  acquisition  of  title  are  emphasized,  when  they 
exist. 

The  underlying  purpose  has  been  to  select  topics  important  to  the 
engineer  substantively,  and  which  will  assist  him  to  more  fully  under- 
stand his  relation  to  the  law  of  Real  Property  when  he  is  a  party  to  a 
contract  which  has  reference  to  it.  Thus  Deed  Descriptions,  their  inter- 
pretation, and  the  Duties  of  the  Surveyor  in  relation  thereto  are  carefully 
considered,  as  well  as  the  privileges  of  municipalities  as  to  their  water 
supplies  and  sewage  disposal,  the  practical  burden  imposed  by  the  rule 
of  "Lateral  Support,"  etc.,  etc. 

An  engineer's  duties  frequently  cause  him  to  deal  with  the 
property  of  others,  hence  familiarity  with  a  few  definitions  and 
principles  pertaining  to  property  may  assist  the  student  or 
engineer  better  to  appreciate  the  significance  of  his  acts.  It 
may  also  stimulate  his  interest  to  a  further  inquiry  into  the  law 
of  a  subject  so  fundamental  to  society,  since  ownership  in  land  is 
obviously  the  source  of  all  wealth. 

180.    LAND.  —  At  the  outset  it  is  to  be  noticed  that  property 
is  of  two  general  classes : 

(a)  Real  estate,  real  property,  or  realty,  all  comprised  under 
the  general  head,  "  Land  "  ;  and 

(6)  Everything  which  is  not  land  is,  in  general  terms,  personal 
property,  personalty,  or  a  chattel. 

This  is  but  a  very  broad  classification,  however,  and  various 
other  intermediate  property  rights  exist  between  these  two,  but 
they  cannot  be  discussed  here.  Speaking  generally,  "  land " 
includes  the  surface  of  the  earth,  with  all  above  and  beneath  it. 
When  one  is  the  owner  of  land  he  owns  everything  from  the 
center  of  the  earth  to  the  highest  heavens,  unless  other  estates 
have  been  created  lying  above  or  below  his.  Thus,  one  might 
possess  land  and  reserve  the  right  to  till  its  surface,  selling  the 

132 


REAL    PROPERTY  §182 

coal  beneath  it  to  another  person,  and  the  right  to  the  petroleum, 
or  gas  underlying  the  coal,  to  still  a  third  person. 

181.  MATERIALS  OF  CONSTRUCTION.  —  By  an  appar- 
ent anomaly,  everything  fixed  or  firmly  attached  to  the  soil  is 
"  land,"  —  as  houses,  structures,  fences,  trees,  foundations,  etc., 
etc.     But  things  which  are  capable  of  being  moved,  or  carried 
away,  are  personalty,  or  chattels.     Thus  building  materials,  —  as 
stone,  sand,  lumber  unattached  to  the  soil  or  to  any  structure, — 
are  personalty,  though  they  become  realty  when  built  into  some- 
thing.    Again,  while  a  growing  tree  or  other  product  of  the  soil  is 
realty,  when  it  is  cut  down  or  detached  from  the  soil  it  is  per- 
sonalty.    Ice  cut  from  ponds  or  rivers,  and  soil  dug  up  to  be  used 
elsewhere,  are  personalty,  and  this  is  also  true  of  minerals  and 
metals,  which  are  realty  while  they  remain  imbedded  in  the  earth. 
And  so,  too,  coal,  oil,  petroleum,  percolating  waters,  and  natural 
gas,  while  in  the  earth  are  realty,  but  when  released  or  brought 
to  the  surface  they  become  personalty. 

The  distinction  between  realty  and  personalty  is  far  from  be- 
ing an  academic  one,  however,  since  the  whole  body  of  law  with 
reference  to  each  of  the  two  is  radically  different. 

182.  TRADE  FIXTURES.  —  To  be  a  "  fixture  "  the  article 
must  be  annexed  to  the  land  (or  building,  etc.),  and  the  manner 
of  doing  it  must  be  taken  into  account.     So  must  the  relations 
of  the  parties  affixing  be  considered  with  reference  to  the  parties 
owning  the  estate,  the  use  of  that  part  of  the  building  where  it 
was  annexed,  and  the  intention  of  the  parties  doing  it.     This  rule 
shows  why  many  cases  hold  that  if  an  article  cannot  be  removed 
without  injury  to  the  remaining  estate,  this  shows  the  intention 
of  the  parties  better  than  anything  else.     The  rule  also  shows 
why  there  should   be  more  indulgence  between   landlord   and 
tenant  than  between  grantor  and  grantee.     (See  §  216.)      There- 
fore if  a  tenant  erects  expensive  structures  for  carrying  on  his 
business  which  cannot  be  removed  without  injury  to  the  premises, 
yet  that  is  no  reason  for  supposing  that  he  intended  to  give  them 
to  his  landlord.     If  a  machine,  for  example,  is  fixed  to  the  realty 
in  order  to  be  stable  for  its  ordinary  uses,  and  is  securely  fastened 
for  that  purpose  only,  then  it  is  personalty  notwithstanding  such 
fixation. 

This  subject  of  "  Fixtures  "  has  provoked  much  litigation. 
Suppose  a  man  bought  a  tract  of  land  upon  which  was  erected 

133 


§183  CONTRACTS 

a  steam  saw-mill,  among  other  things.  No  specific  mention  is 
made  of  the  mill  in  the  deed  which  conveys  the  land.  The  seller, 
before  delivering  possession  of  the  land,  removes  and  carries 
away  the  boiler  and  engines,  though  they  may  in  fact  have  formed 
the  principal  part  of  the  subject  matter  of  the  transaction.  The 
seller  claims  the  right  to  remove  this  machinery,  saying  they  were 
trade  fixtures.  The  buyer  claims  otherwise,  because  of  the 
general  rule  that  anything  attached,  or  built  into,  or  upon,  the 
ground  is  realty.  Thus  the  ownership  of  several  thousand 
dollars7  worth  of  property  will  hinge  upon  the  proper  definition  of 
"  realty." 

183.  WATER.  —  Though  it  is   a  species   of  real  property, 

water  is  not  in  general  the  subject  of  such 

exclusive  ownership  as  is  land.  We  shall  now  proceed  to  discuss 
several  illustrations  of  this  fact. 

Persons  who  own  land  along  a  stream  —  abutting  on  it  —  do 
at  common  law  respectively  own  the  land  beneath  the  stream, 
to  the  center-line  or  "  thread  "  thereof.  (There  is  an  exception 
to  this  if  the  stream  is  navigable,  or  the  tide  ebbs  and  flows  in 
it.)  But  even  though  the  land  and  the  water  are  inseparable, 
in  such  a  case,  such  owners  can  only  make  such  use  of  the  water 
as  will  serve  to  gratify  their  ordinary  wants,  since  the  owners 
of  land  below  'them  have  equal  rights  to  have  the  water  in  the 
stream  come  to  their  lands  substantially  undiminished  in  quantity, 
and  not  materially  altered  as  to  quality. 

184.  Such  parties  as  we  have  just  been  discussing  are  called 
"  riparian   owners."     A   considerable   body   of   law   deals   with 
riparian  rights  and  ownership,  which  will  be  of  especial  importance 
to  the  civil  engineer  and  others  interested  in  hydraulic  power 
developments,  and  in  boundaries  on  or  near  water.     Mr.  Wait, 
in  his   work   "  Operations    Preliminary   to    Construction,   etc.," 
has  made  an  elaborate  compilation  of  cases  dealing  with  the  owner- 
ship, use,  appropriation,  obstruction  of  streams,  etc.,  to  which 
the  reader  is  referred.     Only  a  few  cases  which  seem  of  particular 
\nterest  to  engineers  will  be  mentioned  here. 

185.  OWNERSHIP    IN    SUBTERRANEAN    WATERS.— 
There  are  two  classifications : 

(a)  Percolating  waters;  and  (b)  those  having  a  definite 
channel. 

Percolating  waters  are  held  to  be  the  property  of  him  in  whose 

134 


REAL    PROPERTY  §187 

land  they  are.  Hence  one  may  intercept  the  natural  percolation 
on  his  own  land,  even  though  it  destroys  his  neighbor's  well  or 
spring.  It  has  been  argued  that  this  is  so  because  the  purchaser 
of  land  buys  in  ignorance  of  the  hidden  currents  of  water  which 
may  be  flowing  to  or  from  the  land ;  hence  he  cannot  be  supposed 
to  have  bargained  for  any  right  to  a  secret  flow  in  another's  land. 
Thus,  for  example,  a  city  was  held  not  liable  for  damage  done 
through  the  building  of  a  sewer  by  it  in  a  street,  though  this  cut 
off  the  flow  in  a  spring  upon  the  land  of  an  abutter. 

Definite  Channel.  —  With  reference  to  water  flowing  in  a 
definite  underground  channel,  it  has  been  held  that  in  order  to  be 
accounted  such,  the  channel  should  be  ascertainable  by  persons 
of  ordinary  intelligence  and  attainments,  without  recourse  to 
digging,  or  to  the  testimony  of  scientists,  or  experts  in  geology. 
When  so  found,  the  owner  of  the  land  under  which  such  a  stream 
flows  may  tap  it  and  make  a  reasonable  use  of  the  water,  as  may 
riparian  owners  generally. 

186.  Pollution  of  Underground  Waters  comes  under  the  fun- 
damental rule  of  torts  (see  §  156)  that  one  must  not  use  even  his 
own  property  so  as  to  injure  his  neighbor.     Therefore  if  he  permits 
the  percolation  of  poisoned  or  contaminated  water  from  his  land 
to  that  of  another,  he  will  be  liable  for  the  damages  done.     At 
his  peril,  he  must  keep  such  deleterious  materials  upon  his  own 
land.     Familiar  examples  are:    Oil-tank  seepage,  leakage  of  gas- 
liquors,  manufacturing,  or  chemical  wastes,  etc.,  etc. 

Though  briefly  stated,  the  logical  development  of  the  principles 
just  given  will  furnish  the  solution  to  many  practical  questions. 

187.  OWNERSHIP    IN    SURFACE    WATERS.  —  Waters 
which  have  no  well-defined  channel  or  banks  are  known  as  "  sur- 
face waters."     Natural  depressions  in  the  land  through  which 
surface  waters  from  adjacent  lands  frequently  flow  are  not  water 
courses.     Surface  waters  include  those  which  are  diffused  over 
the  surface  and  are  derived  from  rains  or  melting  snows,  or  drain- 
age from  the  uplands,  making  wet,  springy,  or  boggy  grounds. 
But  it  will  be  considered  a  water  course  if  from  time  immemorial 
the  water  from  rain  and  melting  snows  has  accumulated  in  large 
quantities  on  the  slopes  of  hills  or  mountains,  and  has  at  regular 
intervals  [seasons]  descended  in  clearly  marked  gullies  or  ravines, 
carving  a  distinct  channel  which  shows  unmistakable   evidence 
of  the  erosion  of  water.     (Amer.  &  Eng.  Ency.  Law.) 

135 


§188  CONTRACTS 

Numerous  cases  have  defined  what,  in  that  particular  instance,  consti- 
tuted a  water  course.  Probably  enough  has  been  said,  however,  to  indicate 
that  the  distinction  between  a  water  course  and  surface  water  is  sometimes 
important.  It  is  suggested  that  one  with  the  trained  intelligence  of  a  civil 
engineer  should  generally  be  able  to  determine  the  fact  when  a  case  arises. 

188.  The  surface  water  belongs  to  him  who  possesses  the  land 
upon  which  it  lies,  or  over  which  it  passes.     Hence  he  may  do 
with  it  as  he  sees  fit. 

An  interesting  question  arises  with  reference  to  the  flow  of  sur- 
face water  before  it  reaches  one's  land.  Can  it  be  prevented 
from  coming  upon  the  land?  In  most  of  the  Eastern  States  the 
common  law  rule  is  followed  to  the  effect  that  a  lower  owner  may, 
at  his  pleasure,  repel  or  divert  surface  water  from  coming  upon 
his  land. 

From  this  it  would  appear  that  if  B,  owning  lower  land,  finds  it  a  benefit 
to  have  the  surface  water  come  to  him  from  A's  upper  land,  yet  B  has  no 
redress  if  A  diverts  it  before  it  reaches  the  upper  land,  thus  depriving  B  of 
the  benefits  he  would  derive  from  the  water. 

There  is,  therefore,  a  prominent  distinction  between  the 
quality  of  ownership  which  may  be  had  in  surface  waters,  and  in 
water  courses.  In  the  first,  the  ownership  is  exclusive;  in  the 
second  it  is  strongly  qualified. 

189.  SURFACE  DRAINAGE  INTO  WATER  COURSES.  — 
One  may  drain  water  from  his  own  land  into  ditches,  and  thus 
perhaps  increase  the  flow  and  accelerate  the  current  discharging 
upon  a  lower  owner.     But  if  the  ditching  is  of  a  reasonable  and 
proper  sort,  is  for  the  purpose  of  improving  the  upper  land  and 
not  intended  primarily  to  injure  the  lower  owner,  there  can  be 
no  claim  for  damages.     (81  N.  Y.  86.)     But  as  it  is  universally 
held  that  the  upper  owner  has  no  right  to  collect  surface  water 
into  ditch,  drain,  canal,  or  other  artificial  reservoir  and  then  dis- 
charge it  in  a  volume  upon  the  lower  lands,  it  will  be  seen  that 
the  upper  owner's  rights  lie  somewhere  between  these  two  limits. 
To  determine  them  in  a  particular  instance  will  be  "  a  question  of 
fact  "  for  a  jury. 

190.  Rights  of  Municipalities.  —  The  control  of  surface  waters 
is  often  a  matter  of  some  moment  to  municipalities.     At  common 
law  (in  the  absence  of  statutory  or  constitutional  provisions),  a 
city  incurs  no  liability  to  abutting  owners  by  varying  the  disposal 
of  surface  waters  in  skilfully  carrying  out  duly  authorized  munic- 
ipal improvements. 

In  Minnesota  it  has  been  held  that  the  city  is  not  liable  for 

136 


REAL    PROPERTY  §191 

failing  to  provide  sewers  to  carry  away  surface  water  naturally 
coming  upon  a  citizen's  lot.  And  in  Massachusetts  it  has  been 
held  that  a  city  incurred  no  liability,  even  if  it  prevented  water 
from  a  flooded  house-lot  from  coming  into  its  sewers,  though  the 
excess  of  water  was  a  direct  consequence  of  changes  of  street 
grade  in  the  vicinity.  (136  Mass.  119.)  New  York  decisions  are 
to  the  same  effect,  and  probably  many  others.  As  the  different 
jurisdictions  exhibit  a  variety  of  views  in  dealing  with  surface 
waters  affected  by  act  of  a  municipality,  cases  contrary  to  those 
just  given  may  doubtless  be  found. 

It  may  seem  remarkable  to  the  student  that  a  private  person 
can  be  injured  as  above  indicated,  and  yet  have  no  redress.  The 
reason  is  probably  to  be  found  in  public  policy,  —  the  greatest 
good  for  the  greatest  number  benefited  by  the  municipal  improve- 
ments,—  for  a  municipal  corporation,  as  a  great  aggregation  of  per- 
sons, should  have  more  extensive  privileges  than  a  mere  private 
individual.  In  cases  of  this  class  the  element  of  negligence  in 
performing  the  work  is  a  prominent  factor  which  may  give  results 
opposite  to  those  given  above.  The  existence  of  modifying 
statutes  on  the  matter  is  likely,  and  has  been  already  noted.* 
(See  §  265,  Liability  of  Municipal  Corporation  in  Tort.) 

Railroads  are  also  often  involved  with  questions  of  surface 
water,  because  of  their  extensive  embankments  upon  low  lands. 
They  have  much  less  extensive  privileges  than  municipalities  in 
this  respect,  and  are  dealt  with  merely  as  private  individuals. 
If  they  cause  damage  by  varying  the  flow  of  surface  waters  they 
are  responsible  for  it;  but  this  rule  like  every  other  principle  of 
the  common  law,  is  susceptible  of  frequent  changes  by  specific 
statutes. 

191.  WATER  COURSES.  —As  has  been  said,  the  owner  of 
land  on  a  natural  stream  has  a  right  to  have  the  water  come  to 
him  substantially  unimpaired  as  to  quality  and  undiminished 
in  quantity.  If  the  waters  are  fouled  by  the  operation  of  factories, 
mills,  or  works,  the  operators  are  liable  in  damage  suits,  or  sub- 
ject to  an  injunction  from  the  injured  riparian  owners. 

Streams  flowing  through  populous  districts  with  extensive 
manufacturing  interests  will  ordinarily  have  their  waters  con- 
siderably polluted,  and  it  is  not  meant  that  the  purity  shall  be 
absolute,  since  this  rarely  exists  even  in  a  state  of  nature.  How- 

*See  Appendix  Note  11.     "  Approp.  of  Munic.  Water  Supp." 

137 


§192  CONTRACTS 

ever,  any  pollution  of  a  stream  that  renders  it  unfit  for  the  usual 
and  proper  uses  hitherto  obtaining,  is  a  nuisance.  It  can  be 
abated  at  law,  and  damages  had.  What  is  an  "  unreasonable  " 
pollution  is  always  a  question  of  fact  for  a  jury,  and  therefore  no 
rules  concerning  it  can  be  given  here. 

192.  Sewage  Disposal  Into  Streams  is  important  to  the  engineer 
professionally,  since  sewage  disposal  is  an  engineering  specialty. 
From  a  sanitary  view-point  it  is  a  vital  matter  to  the  community 
generally.     Mr.  E.  B.  Goodell,  in  Water  Supply  Paper  No.  103, 
of  the  U.  S.  Geol.  Survey,  reviews  the  "  Laws  forbidding  the  Pollu- 
tion of  Inland  Waters  "  in  a  comprehensive  manner.     He  says 
(p.  21),  in  referring  to  municipalities:    "  As  riparian  owners  they 
have  the  same  rights  and  are  subject  to  the  same  restrictions  in 
the  use  of  water  flowing  over  their  lands  as  private  owners.     That 
is  to  say,  they  may  deposit  sewage  in  the  water  if  it  causes  no 
injury  to  property  below  them.     And  if  a  statute  authorizes  the 
construction  of  a  system  of  sewers  to  discharge  into  a  specified 
stream,  even  then  there  must  be  no  nuisance.     If  it  were  other- 
wise, that  is,  if  the  lower  owners  had  no  redress,  the  constitutional 
provision  against  taking  private  property  for  public  uses  without 
just  compensation  would  be  violated." 

Mr.  Goodell  notes  that  there  is  beginning  to  be  considerable 
activity  in  this  matter  among  the  law-makers  throughout  the 
country.  The  legislation  all  tends  to  prevent  stream-pollution, 
particularly  in  the  populous  districts,  though  its  effect  upon  the 
public  health  has  only  begun  to  be  popularly  realized  in  com- 
paratively recent  years. 

Disposal  Into  Streams  After  Purification.  —  In  Eng.  Rec. 
Vol.  51,  No.  5,  there  is  a  brief  editorial  reviewing  a  decision  of 
the  Supreme  Court  of  Massachusetts  in  a  suit  brought  against  the 
City  of  Worcester,  based  upon  its  alleged  carelessness  in  purifying 
its  sewage.  (See  also,  72  N.  E.  Rep.  326.)  The  decision  points 
out  that  since  the  benefits  of  sewage  purification  are  not  alone  con- 
fined to  the  residents  of  the  city  doing  it,  but  that  it  also  benefits 
a  population  lying  outside  its  limits,  the  State  has  determined  that 
it  is  "no  more  than  fair  that  those  receiving  such  benefit  should  con- 
tribute to  the  expense.  The  decision  also  decides  that  a  city 
cannot  be  held  for  small  nuisances  which  it  may  create  after  it  has 
exhausted  all  reasonable  steps  to  purify  its  sewage. 

193.  Obstructions.  —  If  a  city  or  town  negligently  constructs 

138 


REAL   PROPERTY  §196 

or  maintains  a  bridge  or  culvert  across  a  river,  causing  the  water 
to  flow  back  and  injure  the  land  of  a  private  person,  it  is  liable  in 
tort.  The  same  is  true  if  it  empties  a  common  sewer  upon  such 
land  to  the,  owner's  injury.  These  results  are  reached  not  neces- 
sarily because  of  negligence,  but  in  the  first  case,  at  least,  because 
of  injury  to  another's  property  rights  outside  the  limits  of  the 
public  work. 

194.  Mill  Privileges.  —  A  few  old  Massachusetts   cases  will 
be  given  without  comment.     A  owns  a  mill,  and  B  owning  land 
below  him  builds  a  dam  which  sets  the  water  back  to  the  serious 
interference  with  A's  wheel.     A  has  a  right  of  action  against  B. 
(9  Mass.  316.)     Or  if  C  above  A  builds  a  dam  for  irrigating  his 
land,  and  uses  practically  all  the  water  for  that  purpose,  he  will 
be  liable  to  A.     (13  Mass.  420.)     But  such  injuries  must  be  real, 
and  not  theoretical.     (9  Pick.  59.)     (See  also  §  208.) 

ESTATES    IN    LAND 

195.  DEGREES  OF  OWNERSHIP.  —  Before      attempting 

to  show  any  of  the 

relations  between  the  law  of  contracts  and  of  real  property,  it 
will  be  necessary  to  make  a  short  statement  outlining  the  degrees 
of  ownership  in  real  property  known  as  "  estates."  Having 
learned  the  meaning  of  a  few  prominent  technical  terms  pertaining 
to  the  subject  we  may  then  talk  intelligently  about  the  situations 
wherein  they  arise. 

"  Estate  "  is  a  word  with  a  distinct  technical  meaning,  and 
signifies  the  degree,  quality,  nature,  and  extent  of  one's  interest 
or  ownership  in  land. 

The  term  should  not  be  confused  with  the  use  of  the  word  in  "real  estate," 
where  it  is  equivalent  to  "land,"  or  "land  and  buildings,"  and  designates 
a  physical  substance.  "Estate"  is  the  name  of  the  "incorporeal"  right  in 
the  land. 

196.  FEE  SIMPLE.  —  When  a  person  is  absolute  owner  of 
land,  —  in  legal  phrase,  "  the  possessor  of  all  legal  rights,  titles, 
and  interests  therein,"  he  is  said  to  be  the  holder  of  the  fee  simple, 
or  to  use  the  shorter  term,  the  holder  of  the  fee.     (A  study  of  the 
origin  of  this  word  would  take  us  far  back  into  English  feudal 
history,  foreign  to  our  present  purpose.)     To  hold  a  fee  means, 
therefore,  that  no  other  person  whatsoever  owns  a  paramount 
interest  in  the  land,  though  various  lesser  estates  in  it  may  be 
existent.     And  if  the  present  owner  in  fee  is  not  dispossessed  by 

139 


§197  CONTRACTS 

action  of  law,  and  he  fails  to  make  any  other  disposition  of  the 
land  during  his  lifetime,  it  will  descend  to  his  heirs. 

We  have  said  that  the  holder  of  the  fee  is  the  absolute  owner 
of  the  land.  The  word  absolute  cannot  be  compared.  It  will 
appear,  therefore,  that  the  "  fee  "  is  the  paramount  title  to  real 
property  known  to  the  law.  One  who  succeeds  to  the  title  of  a 
holder  in  fee,  thus  becomes,  in  turn,  the  absolute  owner. 

197:  LESSER  ESTATES.  —  The  common  law  recognizes 
estates  less  than  fee.  A  familiar  example  is  a  landlord  renting 
his  real  estate  (be  it  for  a  greater  or  less  time)  which  creates  an 
"  estate  for  years,"  (or  "  at  will  ")  as  the  case  may  be.  Another 
common  case  is  an  "  estate  for  life/'  perhaps  most  commonly 
created  in  wills.  By  "  life  estate  "  is  meant  that  a  certain  interest 
of  a  desired  degree  or  quantity  is  conferred  upon  some  one,  to  be 
possessed  and  enjoyed  by  that  person  during  his  lifetime,  and  to 
terminate  with  his  death.  A  "  life-tenant,"  therefore,  has  no 
power  to  give  away  or  to  sell  his  interest  so  as  to  make  the  term 
depend  upon  any  life  but  his  own.  But  he  may  withdraw  his 
rights,  and  make  over  the  estate  in  favor  of  the  "  remainder- 
man "  as  the  person  is  called  who  is  to  succeed  to  the  fee  after 
him.  A  widow's  "  dower  "  is  precisely  this  sort  of  an  estate. 

From  the  foregoing  it  may  be  seen  that  the  holder  in  fee  can 
convey  away  any  lawful  estate  of  a  lesser  degree  and  still  retain 
the  fee,  since  the  whole  is  greater  than  any  of  its  parts.  And  it  is 
equally  obvious  that  if  a  person  possessed  of  the  fee  does  convey 
a  lesser  estate,  the  person  taking  the  lesser  estate  does  not  suc- 
ceed to  the  fee,  —  a  distinction  sometimes  lost  sight  of.  This 
distinction  becomes  important  when  the  significance  of  "  reser- 
vations "  and  "  exceptions  "  in  deeds  of  lands  is  under  discussion. 

198.  EASEMENTS.  —  Another  estate  less  than  fee  (some- 
times very  small  indeed)  but  about  which  much  is  heard  is  called 
an  "  easement."  An  easement  is  the  right  or  privilege  to  use  the 
land  of  another  person  without  giving  him  any  compensation 
therefor.  It  is  a  right  possessed  by  the  owner  of  one  piece  of 
land  to  use  the  land  of  another  for  a  special  purpose,  only. 

For  example,  suppose  I  own  a  tract  of  land  abutting  on  a  highway,  but 
sell  the  rear  half  of  my  lot  to  another  person  who  owns  no  land  contiguous 
to  the  piece  I  sold  him.  Here  the  law  will  imply  an  "easement  of  access," 
and  whether  I  mentioned  it  or  not  in  my  deed  to  him,  he  would  have  a  "right, 
of  way"  to  go  out  and  in  across  my  lot  to  his,  and  this  he  may  do  even  against 
toy  consent,  and  still  not  be  a  trespasser.  It  is  only  proper  to  say,  however, 

140 


REAL    PROPERTY  §201 

that  in  such  a  case  most  fair-minded  persons  would  have  granted  this  right  of 
way  in  the  deed. 

199.  Speaking  generally,  an  easement  can  only  pertain  or 
attach  to  land,  —  it  is  distinctively  a  part  of  the  law  of  real 
property.     In  the  case  last  put,  the  buyer's  would  be  termed  the 
dominant  and  mine  the  servient  estate,  and  two  such  estates  are 
necessary  for  the  existence  of  every  private  easement.     Further, 
this  easement  of  access  would  be  said  to  be  appurtenant  to  the  lot 
I  sold,  and  perhaps  this  will  sufficiently  explain  this  term,  so 
frequently  found  in  deeds.     There  is  a  great  variety  of  easements, 
such  as  the  right  to  the  use  of  a  drain ;  to  use  an  alley  for  specific 
purposes ;  the  right  to  take  ice  from  a  pond ;  to  have  access  to  an 
ice-house;  to  have  free  access  to  light  and  air,  with  reference  to 
buildings  upon  a  particular  site,  etc.,  etc. 

200.  Party  Wall.  —  When  engaged  in  architectural  work  and 
building  construction,  the  engineer  will  need  to  understand  the 
easements  relative  to  a  "  party  wall."     This  term  refers  to  a 
wall,  erected  on  the  line  between  two  adjoining  owners,  for  the 
use  of  both  parties,  and  resting  partly  upon  the  land  of  each.     It 
is  frequently  built  by  one  owner  in  advance  of  the  needs  of  the 
other,  and  unless  there  are  statutes  providing  that  the  expense 
of  construction  shall  be  borne  jointly,  numerous  cases  have  held 
that  if  only  one  owner  wishes  to  use  the  wall,  he  must  bear  the 
expense  of  construction.     In  such  a  case,  the  soil  of  each  owner 
and  the  part  of  the  wall  belonging  to  him  is  burdened  with  an 
easement  (or  "  servitude  ")  in  favor  of  the  other  owner,  to  the 
end  that  it  may  afford  a  support  for  the  wall  and  building  of  the 
other  person. 

201.  If  an  easement  is  not  appurtenant  to  some  piece  of  land, 
and  this  is  sometimes  the  case,  it  is  called  an  "  easement  in  gross." 
A  typical  illustration  of  an  easement  in  gross  is  found  in  the 
public  use,  as  a  highway,  of  strips  from  the  land  of  two  adjoining 
owners,  when  such  strips  of  land  have  not  been  acquired  by  deed, 
dedication  nor  eminent  domain,  but  remain  the  property  of  the 
original  owners.     In  such  an  instance  the  public  is  said  to  have  an 
easement  of  passing  and  repassing  in  those  particular  pieces  of 
land.     This  practice  is  common  in  many  parts  of  the  country, 
and  may  give  the  surveyor  trouble  when  he  is  called  upon  to 
locate  the  boundaries  of  a  piece  of  land  adjacent  to  a  highway. 
He  will  avoid  trouble  on  this  score  if  he  ascertains  from  the 

'   141 


§  202  CONTRACTS 

records  (1)  whether  the  original  owners  gave  or  "  dedicated  "  the 
strips  of  land  for  the  highway  when  it  was  laid  out ;  or  (2)  whether 
the  public  acquired  an  easement  by  long-continued  use  (see 
§  §  204-7)  of  the  strips  in  question  (in  which  case,  the  land  in  the 
street  still  belongs  to  the  adjacent  owners,  one-half  to  each) ; 
or  (3)  whether  the  land  for  the  highway  was  acquired  by  pur- 
chase on  the  part  of  the  town  or  county,  or  "  taken  "  by  eminent 
domain.  (See  §  235.)  In  the  first  case,  the  land  in  the  street 
belongs  to  the  public  or  there  may  be  an  easement,  merely,  accord- 
ing to  the  language  used;  in  the  second  case,  the  public  has  an 
easement  in  the  land,  only,  and  if  .the  street  were  to  be  aban- 
doned, the  strips  of  land  would  revert  to  the  abutting  owners; 
in  the  third  case  there  may  be  a  fee  taken  or  the  eminent  domain 
may  refer  to  an  easement,  merely. 

202.  Creation  and  Extinguishment  of  Easements.  —  It  is  held 
that  an  easement  can  only  be  created  by  a  deed  (see   §  214) 
or  by  prescription,  or  operation  of  law.     (See  §§   198,  204-7.) 
They  may  be  destroyed,  or  extinguished  in  a  variety  of  ways, 
however.     Thus,  when  the  estate  to  which  it  is  appurtenant 
ceases  to  exist,  the  easement  is  destroyed.     The  same  is  true  if 
there  is  a  "  merger  of  estates,"  meaning  that  the  same  person 
comes   to   own  both  the   dominant   and  servient   estates.     An 
abandonment  has  the  same  effect,  but  to  be  effective,  this  must  be 
more  than  a  mere  temporary  cessation  in  using  the  easement.     If 
the  easement  was   created  by  prescription,  when  the  purpose 
for  which  it  was  created  ceases  to  exist,  then  the  easement  passes 
out  of  existence,  also.     An  old  Massachusetts  case  holds,  more- 
over, that  whether  an  easement  is  acquired  by  a  known  grant 
or  by  prescription,  it  may  be  extinguished,  renounced,  or  modified 
by  a  parol  license  granted  by  the  owner  of  the  dominant  estate, 
and  executed  and  carried  into  effect  by  the  owner  of  the  servient 
estate.     (68  Mass.  302.) 

From  the  foregoing  it  will  be  seen  that  a  person  who  owns 
land  subject  to  an  easement  has  had  a  slice,  as  it  were,  taken  out 
of  his  fee  simple.  His  ownership  is  something  less  than  that 
major  title  so  named. 

MODES    OF    ACQUIRING    TITLE    IN    LAND 

203.  The  title  to  land  may  be  transferred  in  various  ways 
and  three  general  modes  of  passing  the  title  will  be  briefly  con- 
sidered, as  follows: 

142 


REAL    PROPERTY  §204 

(a)  By  an  act  of  a  Party,  —  as  Prescription,  and  Adverse 
Possession ; 

(6)    By  Deeds,  —  which  are  formal  contracts ; 

(c)  By  Operation  of  Law,  —  as  Accretion,  Eminent  Domain, 
and  Dedication. 

204.  ESTATES  BY  PRESCRIPTION,  AND  ADVERSE 
POSSESSION.  —  A  topic  often  closely  allied  to  easements  is  "  title 
by  prescription."  But  before  discussing  this  topic  mention  must 
be  again  made  to  the  Statute  of  Limitations  (see  §  161 -[6]), 
which  if  applied  to  real  estate  refers  to  a  period  of  twenty  years 
(or  thereabouts,  in  most  jurisdictions). 

By  the  older  common  law,  one  who  had  a  right  of  action  (i.e. 
grounds  for  a  lawsuit)  against  another  person,  could  not  lose  it 
by  the  lapse  of  time.  It  will  be  easily  appreciated  that  these 
facts  offered  a  rich  field  to  imposters  who  could  thus  dig  up  some 
hoary  claim  aged  a  century  or  two,  when  of  course  everybody 
who  knew  enough  about  the  matter  to  be  a  witness  was  long  dead. 
There  was  another  positive  and  great  disadvantage  in  allowing 
the  courts  to  be  hampered  by  a  mass  of  ancient  troubles,  when 
present  current  business  demanded  all  their  attention.  Hence 
as  far  back  as  the  time  of  King  James  I.  there  was  passed  this 
"  Statute  of  Limitations  of  Actions,  and  for  Avoiding  Suits  at 
Law."  The  fundamental  proposition  as  it  now  concerns  us,  is 
that  if  a  person  possessing  the  fee  in  land  abandons  it  for  a  long 
enough  period,  he  loses  his  title.  Though  perhaps  the  incomer 
is  a  mere  squatter  only,  yet  if  he  holds  the  land  continuously, 
openly,  etc.,  and  claims  to  hold  under  a  right  adverse  to  that  of 
the  owner,  and  this  condition  exists  for  twenty  years  (or  any 
other  statutory  period)  then  the  squatter  becomes  absolute  owner 
of  the  fee  by  operation  of  the  legal  doctrine  termed  "  Adverse 
Possession." 

Suppose,  for  example,  that  A  conveyed  to  B  by  deed  a  lot 
of  land  described  as  "  fronting  30  feet  on  X.  Street."  The  land 
was  not  measured,  but  A  described  it  as  extending  to  a  certain 
stone,  which  was  in  fact  five  feet  from  the  true  corner,  and  lay 
beyond  it.  B  fenced  the  land  as  far  as  the  stone,  including  the 
extra  five  feet,  and  occupied  it  for  twelve  years,  believing  all  the 
land  belonged  to  him. 

Then  B  sells  his  lot  to  C,  and  the  deed  of  sale  follows  the  same 
description  as  that  in  the  deed  which  he  received  from  A.  C 

143 


§  205  CONTRACTS 

then  occupies  the  whole  premises  for  ten  years.  X,  who  is  the 
owner  originally  adjoining  A's  land,  was  in  fact  owner  of  the  five- 
foot  strip  all  the  time. 

Assuming  that  B  can  pass  on  to  C  as  much  title  as  he  himself 
possessed,  can  X  now  dispossess  C? 

It  is  evident  that  neither  B  nor  C  held  the  land  for  twenty 
years;  therefore  the  question  is  whether  they  can  add  together, 
or  "  tack  "  their  terms  to  make  up  the  statutory  period.  Massa- 
chusetts formerly  held  this  could  not  be  done,  unless  there  was 
blood  relationship,  as  by  descent,  between  B  and  C.  Numerous 
other  States,  however,  have  followed  the  spirit  of  the  law,  which 
is  to  quiet  titles,  and  to  cut  off  the  rights  of  those  dilatory  in 
enforcing  them,  and  have  allowed  two  such  terms  to  be  "  tacked." 
Massachusetts,  in  1903,  fell  into  line,  only  requiring  that  the  land 
against  which  adverse  possession  was  to  run  should  be  continu- 
ously occupied  as  a  part  of  a  larger  estate. 

205.  It  is  commonly  stated  that  to  allow  title  by  adverse 
possession  to  be  gained,  it  must  be  open,  "  notorious,"  avowedly 
contrary  to  the  rights  or  claims  of  some  other  person,  and  must 
be  important  enough  to  give  notice  to  such  persons  that  a  claim 
of  right  is  intended  thereby,  etc.,  etc.     While  it  is  thus  very  easy 
to  recite  what  shall  constitute  adverse  possession,   it  is   a  far 
harder  matter  to  prove,  or  disprove,  its  existence  in  the  manner 
required  by  law. 

206.  The  important  legal  principle  underlying  adverse  pos- 
session is  often  lost  sight   of   by  surveyors.     They   are   called 
upon  to  locate  the  boundaries  of  a  piece  of  land  as  described  in  a 
deed,  and  often  entirely  neglectful  of  the  rights  gained  by  long- 
continued  use  and  possession,  and  the  "  running  of  the  Statute 
of  Limitations  "  (§  204),  they  engender  bitter  animosities  between 
neighbors  by  assuming  that  the  mathematical  basis  of  the  art  of 
surveying  furnishes  the  only  clue  to  determining  the  legal  boun- 
daries.* 

The  essential  principle  seems  to  be  that  if  every  person  who 
owns  land  in  fee  ("  seised,"  in  legal  phrase)  does  not  assert  his 
title  and  occupy  the  land  in  a  manner  sufficiently  unequivocal 
during  a  period  of  twenty  years,  then  his  title  may  evaporate,  if 

*See  a  valuable  article  by  G.  L.  Teeple  and  L.  S.  Smith,  reprinted  from 
Wisconsin  Engineer,  December,  1909,  in  Engineering-Contracting,  February  2, 
1910,  on  Significance  of  Adverse  Possession  to  the  Surveyor. 

144 


EEAL    PROPERTY  §208 

the  word  is  allowable.  The  superior  title  has  been  lost  through 
the  holder's  negligence  in  failing  to  assert  it  effectively  within  a 
reasonable  time.  In  popular  language,  his  claim  is  outlawed. 

"By  the  long  and  undisturbed  possession  of  real  property,  a  person  may 
acquire  a  title  to  it,  or  a  right  of  ownership  superior  in  law  to  that  of  another 
who  may  be  able  to  prove  an  antecedent,  and  at  one  time  a  greater  title. 
This  superior  title  has  been  lost  by  the  negligence  of  the  person  holding  it 
failing  to  assert  it  effectively  within  a  reasonable  time,  as  by  resuming  posses- 
sion to  which  he  was  entitled,  or  asserting  his  right  by  suit  in  the  proper 
court."  (115  U.  S.  620.) 

207.  Having  now  explained  at  some  length  the  spirit  of  the 
law  beneath  adverse  possession,  the  way  is  prepared  for  the  brief 
statement  that  acquisition  of  title  by  prescription  means  almost 
the  same  thing.     In  fact,  title  by  adverse  possession  refers  to 
the  land  itself ;  while  title  by  prescription  applies  to  some  right  in 
land,  as  for  example,  easements.     Long  and  undisturbed  possess- 
sion  of  a  right  in  land  (one  which  is  properly  an  incident  of  its 
ownership)  may  give  rise  to  an  easement  by  prescription ;  of  this 
there  are  countless  cases  in  the  law  books.     If  the  party  who  is 
even  slightly  injured  in  his  property  rights  acquiesces  in  them 
long  enough,  and  suffers  it  to  continue  without  objection,  the 
Statute  of  Limitations  will  cause  him  to  lose  his  right  to  apply 
for  a  legal  remedy.     The  effect  is  that  a  prescriptive  easement 
will  have  been  obtained  against  him. 

208.  Easements    Obtained    by    Prescription.  —  It    has    been 
already  hinted  that  in   certain  instances   easements  might   be 
gained  by  prescription  (see    §  207)   and  the  importance  of  the 
topic  will  warrant  further  mention  of  some  of  them  here.     Thus, 
with  reference  to  easements  in  water,  it  has  long  been  held  that 
the  prescriptive  right  to  flow  lands  by  setting  water  back  with  a 
dam  may  be  acquired  without  compensation,  if  the  water  is  so 
set  back  for  twenty  years  without  objection  from  the  injured  land- 
owner.    (28  Pick.  141.)     And  if  a  mill-pond  has  not  always  been 
maintained  at  its  maximum  level  because  of  a  leaky  dam,  gates, 
etc.,  then  if  the  dam  is  made  tight  but  its  crest  is  not  raised,  no 
one  can  claim  damages  because  the  water  is  made  higher  than  it- 
was  wont  to  be.     (2  Allen  242.) 

The  student  may  reason  that  if  the  other  land-owners  enjoyed  the  low- 
water  stage  for  a  long  enough  time,  they  would  acquire  a  prescriptive  right 
to  have  it  remain  at  that  stage.  But  this  is  erroneous,  since  there  is  a  plain 
distinction  between  seizing  upon  and  actively  using  a  right  in  another's  land 
in  derogation  of  the  real  owner's  privileges,  and  on  the  other  hand,  passively 
acquiescing  in  a  benefit  which  incidentally  comes  to  one's  land  by  reason  of 
the  failure  of  an  adjacent  owner  to  fully  assert  the  rights  which  he  possesses. 

145 


§  209  CONTRACTS 

209.  With  reference  to  the  disposal  of  surface  waters,  we  have 
seen  (§  189)  that  an  upper  owner  may  by  ditching  drain  his  land 
into  the  natural  channels  even  though  the  amount  so  thrown 
upon  lower  lands  is  materially  increased ;  but  it  cannot  rightfully 
be  drained  so  as  to  pass  over  lands  other  than  those  accustomed 
to  receive  it.     This   does  not  mean,  however,  that  the  upper 
owner  cannot  gain  a  prescriptive  right  to  a  new  channel  over  the 
lower  land  if  its  owner  refrains  from   objecting  long  enough. 
(See  §  240.)     Neither  can  a  city  construct  sewers  so  as  to  collect 
water  from  a  large  area,  reverse  its  direction,  and  then  discharge 
it  upon  private  premises  to  the  injury  of  the  owner,  —  but  the 
possibility  of  such  a  right  being  acquired  by  prescription  has 
already  been  sufficiently  noted.     Along  the  same  line,  it  has  been 
held  that  if  a  Railway  Company  builds  its  road-bed  in  such  a 
way  as  to  throw  surface  water  upon  adjoining  lands,  it  will  be 
liable  for  damages.     Nor  has  one  person  the  right  to  erect  his 
house  in  such  fashion  that  the  roof  water  will  discharge  upon 
neighboring  land  in  an  injurious  or  unusual  manner,  etc.,  etc. 
There  are  many  easements  which  may  be  acquired  by  prescription, 
but  it  is  unnecessary  further  to  extend  the  list  of  examples. 

210.  LATERAL  SUPPORT.  —  Another  matter  closely  re- 
sembling an  easement  is  the  right  of  "  lateral  support."     It  is  of 
extreme  importance  to  every  engineer  who  begins  construction 
by  delving  in  the  ground,  because  it  is  a  physical  fact  that  all  land, 
save  the  hardest  rocks,  is  dependent  upon  the  adjoining  soil  to  a 
greater  or  less  extent  for  lateral  support.     That  is  to  say,  every 
portion  of  the  soil  is  supported  and  held  in  its  place  by  the  soil 
surrounding  it.     Thus,  if  you  remove  the  surface  of  Lot  B  from 
beside  Lot  A,  Lot  A  will  tend  to  slide  into  the  hole  thus  made. 

It  is  usual  to  say  that  the  right  to  have  the  land  in  Lot  A  sup- 
ported in  its  natural  position  by  the  land  in  Lot  B  is  an  ease- 
ment* incident  to  the  ownership  of  Lot  A.  To  a  certain  extent, 
therefore,  the  owner  of  Lot  B  cannot  do  as  he  pleases  with  his 
own  land.  It  is  held  to  be  immaterial  whether  or  not  the  excava- 
tion is  conducted  with  due  care.  If  it  causes  the  adjoining 
property  to  cave-in  or  to  settle,  this  is  a  tort  (see  §  156),  and  he 
who  digs  is  responsible  therefor. 

*By  an  old  Massachusetts  case  it  is  argued  rather  sharply  that  the  right 
of  lateral  support  is  not  a  technical  easement  for  various  reasons,  which  are 
summarized  in  Appendix  Note  12,  Lateral  Support. 

146 


REAL   PROPERTY  §213 

211.  Fortunately  for  the  engineer  the  law  draws  a  line  and 
says  the  right  of  lateral  support  relates  only  to  the  land  in  its 
natural  condition.     It  does  not  relate  to  buildings  or  structures 
upon  the  land.     Nevertheless,  the  path  of  the  contractor  who 
puts  down  modern,  deep,  skyscraper  foundations   close  to  the 
footings  of  another  high  building,  —  the  usual  city  problem,  —  is 
an  arduous  one,  though  there  is  a  clew  to  his  labyrinth  of  troubles. 
If  he  fails  to  go  down  deep  enough  for  a  proper  foundation  for  his 
own  building  he  will  be  liable  to  his  own  client  for  negligence,  or 
breach  of  his  warranty  and  undertaking  to  construct  properly. 
And  if  he  does  go  to  the  required  depth  the  next  lot-owner  may 
come  upon  him  for  damages  sustained  in  the  settlement  or  worse 
accident  that  has  befallen  his  building. 

212.  It  appears,  however,  that  the  rule  as  to  "natural  condition"  does 
come  to  his  rescue  considerably.     For  since  the  right  relates  to  the  support 
of  the  soil  in  its  natural  condition  only,  it  seems  that  if  he  takes  all  reasonable 
precautions  for  bracing  up  the  next  lot,  and  places  sheeting,  piling,  shoring, 
etc.,  such  as  would  have  been  sufficient  to  support  the  -land  alone,  he  has  met 
the  requirements  of  the  rule.     Then  he  may  notify  the  next  owner  and  put 
the  further  burden  of  supporting  the  added  load  due  to  the  building  upon 
him.     And  this  is  a  burden  justly   imposed   upon  said   owner,   it  would 
seem. 

But  there  are  difficulties  even  in  case  the  next  owner  comes  in  and  shores 
up  his  building  at  his  own  expense.  The  contractor  will  probably  have 
valuable  plant  tied-up,  there  will  be  the  fuss  and  inconvenience  of  having 
another  gang  of  men  about,  not  to  mention  a  separate  quantity  of  materials 
to  encumber  premises  probably  greatly  encumbered  already.  The  average 
contractor  would  doubtless  prefer  to  go  ahead  and  do  all  the  protective  work 
at  one  time.  Then  he  could,  properly  charge  the  next  owner  for  the  extra 
work  done  to  support  the  building  over  and  above  what  would  have  been 
required  to  support  the  soil  alone,  were  it  unloaded.  Practically,  trouble 
would  arise  in  determining  how  much  of  the  bracing  was  necessary  for  the  soil, 
and  how  much  for  the  building. 

Probably  the  best  way  would  be  to  make  an  agreement  with  the  next 
owner  defining  what  was  to  be  paid  for  by  him,  and  then  have  his  engineer,  or 
representative  pass  upon  the  sufficiency  and  character  of  the  protective  work 
as  put  in.  But  if  the  contractor  foolishly  pushes  ahead  with  such  shoring  and 
bracing  as  he  thinks  sufficient,  and  neglects  to  consult  the  next  owner,  then 
if  the  building  does  settle  unduly,  the  contractor  will  be  liable  for  negligence. 
This  would  probably  extend  to  making  good  a  whole  side  of  the  building,  in 
case  it  falls. 

213.  Vertical  Support. — When  minerals,  such  as  coal,  are 
dug  from  beneath  a  surface  estate,  enough  material  must  be  left 
to  keep  the  surface  in  situ,  —  the  surface  has  an  easement  for 
vertical  support.  The  result  is  similar  when  one  person  owns 
the  lower  rooms  of  a  building  and  another  the  upper  stories.  The 
upper  owner  has  a  right  to  support  from  the  division  walls  of 
the  lower  part. 

147 


§214  CONTRACTS 

DEEDS 

214.  Probably  the  everyday  mode  of  transferring  title  in  land 
is  by  a  contract  of  sale.     Numerous  non-contractual   methods 
are  elsewhere  discussed  at  length.     (See   §  §  204-7,  and   §  §  232- 
35.)     A  deed  expresses  the  intention  of  the  parties  as  to  the 
quality  and  quantity  of  ownership  that  shall  pass,  and  may  as 
well  be  used  to  create  an  easement  or  some  of  the  lesser  estates 
as  for  a  fee  simple.     (See  §  196.)     In  fact  a  proper  study  of  deeds 
involves  several  broad  fields  of  law,  and  the  business  of  "  convey- 
ancing "  should  be  only  in  the  hands  of  persons  well  skilled  in  it. 
Somewhat  less  learning  is  requisite,  however,  for  the  proper  under- 
standing of  these  documents  for  transferring  title.     Every  person 
should  be  familiar  with  their  broader  principles,  since  society  is 
made  up  of  but  two  classes,  landlords  and  tenants.     It  is  pecul- 
iarly fitting  that  the  engineer  should  be  well-cognizant  of  deeds 
since  aside  from  the  acquisition  of  land  by  purchase,  he  is  most 
frequently  called  upon  to  interpret  them  in  making  boundary 
surveys. 

215.  ESSENTIALS  OF  A  DEED.  —To  be  valid  and  bind- 
ing, a  deed  of  land  must  contain  the  essential  elements  of  a  con- 
tract.    The  following  must  also  be  true :     There  must  be : 

(1)  a  sufficient  writing; 

(2)  proper  parties ; 

(3)  a  thing  to  be  "  granted,"  or  conveyed ; 

(4)  a  sufficient  consideration ;  and 

(5)  a  proper  and  sufficient  execution  of  the  instrument,  i.e., 
it  must  be  signed,  sealed,  attested,  and  acknowledged ; 

(6)  a   good    delivery    and    acceptance,  —  the    mere    writing 
alone  is  not  operative  unless  coupled  with  delivery  by  one  party 
and  acceptance  by  the  other.     This  is  true  of  all  contracts,  also. 

The  title  is  not  perfected  in  the  recipient  of  the  deed  (save  as 
between  the  parties)  until  the  deed  is  engrossed  upon  the  Registry 
of  Deeds  for  the  county  in  which  the  land  lies. 

Deeds  as  a  class  of  documents  are  of  ancient  origin,  and  their  common 
language,  critically  read,  shows  many  allusions  to  feudal  times.  Much  of 
the  terminology,  though  it  is  highly  archaic,  is  retained  in  modern  days  because 
it  is  historically  certain  just  what  those  terms  mean.  If  they  be  dropped,  or 
radical  innovations  made  in  the  phraseology  the  result  might  be  thrown  en- 
tirely in  doubt.  It  is  natural,  therefore,  that  if  a  person  has  parted  with  his 
money  to  acquire  a  particular  degree  of  title,  he  does  not  wish  to  have  his 
title  experimented  with  by  seriously  modifying  the  old  forms  of  legal  expres- 
sion, hoary  and  musty  though  they  may  be.  Law  stationers  also  commonly 

148 


REAL    PROPERTY  §217 

carry  blank  deeds  with  all  the  formal  parts  printed  thereon,  — which  would 
tend  to  the  same  result. 

216.  PARTS  OF  A  DEED.  —  Technically,  there  are  num- 
erous component  parts  to  a  deed,  but  those  most  interesting  to 
engineers  are  probably  as  follows : 

(a)  The  PREMISES,   containing  the  names  of  the  parties 
(grantor  and  grantee),  the  consideration,  and  a  description  of  the 
property  conveyed ; 

(b)  The  HABENDUM,  which  points  out  the  kind  or  quality 
of  estate  conveyed,  —  whether  fee,  life  estate,  or  otherwise ; 

(c)  The  REDDENDUM,  which  contains  the  "  reservations  " 
(i.e.  phrases  defining  what  parts  of  the  property  described  are  not 
conveyed  to  the  grantee) ,  if  there  are  any ;  and 

(d)  The  COVENANTS,  including  that  of  Warranty,  if  it  is  a 
"  warranty  "  deed. 

As  a  deed  is  par  excellence  a  contract,  the  parties  may  insert 
such  warranties  as  they  see  fit.  The  usual  COVENANTS  OF 
WARRANTY  are: 

1.  That  the  grantor  really  owns  the  land  he  is  in  the  act  of 
conveying,  and  that  hence  he  has  a  perfect  right  to  convey  it  (also 
called  warranty  of  seisin) ; 

2.  Warranty    against    Encumbrances,  —  that    there    are    no 
unsatisfied  mortgages,   easements,   or  other  burdens    upon  the 
land  (save  as  specifically  mentioned) ; 

3.  Warranty  of  Quiet  Enjoyment; 

4.  Warranty    of    Title,  —  that    the   grantor   warrants    (and 
secures  both  as  to  himself  and  his  heirs),  and  will  defend  the  title 
he  is  conferring  against  all  legal  claims  made  by  other  persons. 

217.  WARRANTY  and  QUIT  CLAIM  DEEDS.  —The  pres- 
ence of  this  group  of  covenants  forms  the  distinguishing  feature 
between  a  warranty  deed,  which  is  the  best  possible  deed  (if  the 
grantor  is  financially  responsible),  and  a  "  quit  claim  "  deed,  often 
of  doubtful  value.     Quit  Claim  Deeds  make  none  of  these  valuable 
promises  (covenants)  but  merely  say  that  the  person  making  it 
steps  down  and  out,  as  it  were,  and  the  buyer  takes  the  seller's 
rights  for  whatever  they  are  worth  to  him,  —  which  may  be  much 
or  little.     Frauds  are  often  perpetrated  in  this  way  by  persons 
having  no  interest  in  a  piece  of  land,  and  possessing  no  shade  of 
ownership  whatever.     They  give    a   quit   claim    deed   to  some 
guileless  individual  and  forthwith  depart  with  the  price.     Need- 

149 


§218  CONTRACTS 

less  to  say,  the  misguided  person  has  purchased  nothing  but  some 
experience. 

This  is  not  to  say,  however,  that  a  quit  claim  deed  may  not  be  a 
perfectly  legitimate  one  to  give,  under  certain  circumstances. 
Indeed  it  is  not  uncommon  for  a  grantor  to  give  such  a  deed 
when  there  is  some  slight  technical  imperfection  in  his  title,  but 
which  does  not  practically  impair  his  title  to  any  noticeable 
extent.  In  such  a  case,  the  grantor  may  justly  feel  unwilling 
to  assume  the  severe  obligations  imposed  by  a  "  full  warranty  " 
deed. 

Again,  there  are  persons  temperamentally  opposed  to  taking 
any  sort  of  a  risk,  whatever,  and  even  though  they  may  hold  a  per- 
fect title,  yet  they  are  unwilling  to  "  warrant  "  anything,  and 
therefore,  will  only  permit  themselves  to  give  a  quit  claim  deed. 
It  should  be  noticed,  however,  that  a  quit  claim  assuredly  passes 
whatever  title  its  maker  had,  and  therefore,  if  he  holds  a  fee,  he 
will  pass  a  fee.  Thus  the  quit  claim  deed  will  be  as  satisfactory 
as  any  other  under  the  proper  circumstances. 

218.  EXAMINATION  OF  TITLES.  —  For  the  reasons  indi- 
cated above  prudent  persons  contemplating  the  purchase  of  land 
employ  a  lawyer  to  examine  into  the  legal  sufficiency  of  the  title 
they  are  about  to  acquire  —  a  precaution  which  often  saves  dis- 
astrous moves.     This  work  is  known  as  making  an  "  abstract  of 
the  title  "  and  consists  in  examining  and  noting  the  original  con- 
veyance, dating  as  far  back  as  possible,  then  scrutinizing  carefully 
each  successive  step  in  the  chain  of  title  down  to  the  present 
holder.     Thus  a  number  of  circumstances  or  events  may  make  a 
break  in  the  chain,  or  "  cloud  "  the  title,  as  for  example,  finding 
unsatisfied  mortgages  recorded  against  the  land,  or  parts  of  it; 
finding  that  all  the  required  legal  steps  were  not  taken  in  case  the 
land  has  been  partitioned  among  heirs  by  order  of  a  Probate 
Court ;  finding  that  the  sale  of  it  was  not  valid  in  every  particular, 
in  case  the  land  has  been  sold  on  an  execution  for  debt  ;  finding 
that  there  are  outstanding  tax-titles,  etc.,  etc. 

219.  DEED  DESCRIPTIONS.       The    purpose    of    the    de- 

scription is  to  furnish  the 

means  of  identifying  the  property  which  the  other  clauses  in  the 
deed  are  designed  to  convey.  Hence  deeds  are  practically  void 
and  ineffectual  for  uncertainty  if  they  purport  to  convey  land 
but  do  not  contain  any  description  or  designation  of  it,  or  if  the 

150 


REAL    PROPERTY  §220 

description  is  so  uncertain  that  it  can  not  be  told  what  property 
was  intended. 

To  engineers,  this  part  of  the  deed  is  of  most  immediate 
interest.  An  engineer  should  be  able  to  write  an  adequate  and 
conclusive  description  of  land  he  is  called  upon  to  survey  (which 
is  a  thing  many  so-called  conveyancers  miserably  fail  to  do) .  He 
should  also  be  able  to  perform  satisfactorily  the  more  usual  prob- 
lem, namely,  to  decipher  what  is  really  meant  and  intended  in  a 
description  of  land  of  which  he  is  called  upon  to  locate  and  mark 
the  legal  boundaries. 

To  do  this  adequately  one  needs  an  intelligent  conception  of  what  the 
parties  could  do,  and  what  they  probably  meant,  or  thought  they  were  doing, 
both  as  a  matter  of  common  sense  and  of  law,  together  with  a  well-informed 
mind  as  to  the  limitations  involved,  both  legal  and  physical.  In  fact  this 
argument  is  the  whole  justification  for  presenting  these  outlines  of  the  law  of 
real  property  to  the  engineering  student.  For  since  the  lawyer  has  to  measure 
particular  instances  by  broad  principles  or  rules,  a  person  technically  trained 
in  the  sciences  may  well  have  his  attention  drawn  to  the  same  leading  doctrines 
and  principles  so  far  as  they  relate  to  his  professional  work.  "An  ounce  of 
prevention  is  worth  a  pound  of  cure." 

For.  a  practical  example  of  a  deed  description,  and  cognate 
matters,  the  student  is  referred  to  Breed  &  Hosmer's  Principles 
and  Practice  of  Surveying,  Arts.  149  to  154,  including  a  dis- 
cussion of  the  judicial  functions  of  the  surveyor,  rerunning  old 
surveys  from  deeds,  etc. 

220.  RULES  OF  '"  CONSTRUCTION."  —  As  in  other 
branches  of  the  common  law,  rules  have  grown  up,  —  necessitated 
by  the  unskilfulness  of  those  who  have  undertaken  to  make  legal 
descriptions  of  land,  —  directing  the  interpretation  that  is  to 
be  put  upon  the  language  used.  These  rules  are  based  upon  the 
soundest  public  policy  and  tend  to  give  fixity  and  permanency 
in  the  ownership  and  possession  of  land.  If  this  institution  of 
private  ownership  in  land  is  allowed  to  be  wantonly  or  whimsi- 
cally disturbed  the  very  foundations  of  our  civilized  society  will 
quake  and  tremble. 

In  standard  works  on  surveying,  notably  Johnson's  Theory 
and  Practice  of  Surveying,  at  Arts.  193-4,  there  is  a  cogent  dis- 
cussion of  this  matter  with  rules  for  procedure,  a  few  of  which 
may  be  mentioned  here.  Thus :  "  The  law  presumes  the  deed  to 
have  been  drawn  with  an  honest  intent  to  convey  property." 
The  description  must  therefore  be  construed,  if  possible,  in  such 
a  way  as  to  make  it  effectual  rather  than  void.  To  the  same 
effect,  "  In  ambiguity  due  to  the  language  used,  the  grantee  is 

151 


§221  CONTRACTS 

to  receive  the  benefit  of  the  doubt,"  —  a  principle  we  have 
already  met.  But  if  the  parties  have  shown  by  their  acts  a  mutual 
agreement  or  acquiescence  in  a  certain  interpretation  of  the 
description,  this  meaning  will  hold  and  bind  the  parties. 

221.  Monuments.  — See  also  (same  reference)  Arts.  302-3  on 
The  Value  of  Existing  Monuments  and  Significance  of  Possession, 
and  Arts.  159-60  on  Monuments,  Their  Significance  and  Authority. 
The  ground  is  so  well  covered  that  it  is  needless  to  traverse  it 
here.     It  is  a  legal  principle  of  broad  application  that  such  descrip- 
tions must  be  construed  in  the  light  of  what  was  known  to  be  in 
the  minds  of  the  parties  at  the  time  it  was  written,  and  with 
reference  to  the  monuments  or  facts  then  existing.     It  is  well 
settled  in  Massachusetts  that  if  for  a  boundary  a  deed  refers 
to  a  monument  not  in  existence,  and  the  parties  later  erect  such 
monument  intending  to  conform  to  the  deed,  such  monument 
will  govern  even  though  not  conforming  to  the  line  described 
in  the  deed. 

222.  A  much-quoted  rule  when  angles,  distances,  or  areas  are 
in  conflict,  is,  "  The  monuments  control,"  —  but  it  is  to  be  applied 
with  intelligence  and  not  blindly.     Its  basis  is  sotmd,  however, 
and  is  due  to  the  insight  of  the  judges  who  saw  that  two  persons 
bargaining  over  the  sale  of  land,  having  familiarized  themselves 
with  its  boundaries  (supposedly), would  be  more  likely  to  express 
clearly  what   they  meant  when   describing   the  boundaries   by 
objects  (monuments)  than  would  a  stranger  to  the  transaction, 
as  for  example,  a  surveyor.     The  surveyor,  too,  might  be  unskill- 
ful enough  to  record  a  distance  as  100  rods  when  in  fact  it  was 
101  rods.     Hence  it  was  in  the  interests  of  peace  in  the  body 
politic  to  let  monuments  control,  instead  of  measured  distances, 
since  the  principal  parties  in  interest  determined  the  former, 
while  a  stranger  measured  the  latter. 

223.  What  Quantity  Passes  ?  —  When  there  is  an  ambiguity  or  uncertainty 
as  to  the  quantity  of  land  conveyed,  a  rule  of  construction  is  necessary.  A 
principle  consistent  with  the  foregoing  is  that  if  the  lot  is  described  by  known 
monuments  or  other  certain  descriptions,  then  the  statement  of  quantity  will 
be  rejected. 

Thus  if  the  angles  and  distances  in  a  deed  correctly  enclose  18  acres  while 
the  description  ends  with  the  words  "Containing  24  acres,"  only  18  acres  can 
be  taken,  if  the  landmarks  or  monuments  can  be  positively  identified.  But 
if  on  the  other  hand  the  quantity  was  said  to  be  30  atfres  while  in  fact  the 
monuments  gave  the  area  as  40  acres,  the  whole  40  acres  would  be  taken 
by  the  grantee,  if  the  grantor  had  the  right  to  convey  the  whole. 

224.   GRANT   INCLUDES   WHAT?  —  Of   practical   impor- 

152 


REAL    PROPERTY  §226 

fcance  to  the  surveyor,  engineer  and  man  of  affairs  is  the  question 
"  What  does  a  grant  include?"  Land  in  its  legal  significance 
includes  not  only  the  soil,  and  everything  that  is  firmly  attached 
to  it,  as  buildings,  trees,  fences,  etc.,  but  also  all  those  incorporeal 
rights,  such  as  easements,  which  are  properly  appurtenant  to  it. 
All  these  things,  therefore,  pass  in  a  deed,  unless  the  contrary 
is  expressly  shown.  In  general,  ownership  in  land  extends  in- 
definitely both  upward  and  downward  in  a  vertical  plane,  yet  the 
land  can  of  course  be  separated  into  estates  horizontally  if  it  is 
so  desired.  The  description  in  the  deed  must  of  course  deter- 
mine what  is  conveyed,  but  otherwise  everything  above  and 
below  the  surface  passes  with  it. 

Nowadays,  the  stringing  of  wires  over  land  is  becoming  important.  This 
constitutes  a  trespass  if  done  without  the  license  of  the  owner,  and  if  he 
does  not  remonstrate  during  the  statutory  period  an  easement  so  to  use  the 
air  may  be  acquired  by  prescription. 

This  principle  has  been  held  not  to  apply,  however,  in  the  case  of  a  com- 
pany maintaining  poles  and  wires  in  a  public  street.  No  prescription  can  be 
gained  against  the  public,  in  this  case. 

225.  —  Trees  On  or  Near  Boundaries.  —  Neighboring  owners  of  land  often 
dispute  about  a  tree  on  or  near  the  property  line.     Where  the  line  passes 
through  the  trunk,  the  tree  belongs  to  both  owners  in  common,  and  while  each 
may  do  as  he  likes  with  his  own,  he  cannot  use  nor  destroy  it  if  by  so  doing  he 
injures  his  neighbor's  part  also.     If  the  tree  were  blown  down  by  a  storm,  each 
is  entitled  to  half  the  wood. 

Where  the  tree  is  near  the  line,  its  roots  penetrate  into,  and  the  branches 
overhang  the  next  lot,  it  has  been  held  that  the  owner  of  the  trunk  owns  the 
overhanging  fruit,  and  he  may  gather  it  if  he  can  do  so  while  standing  on  his 
own  land.  The  fruit  is  still  his  after  falling  to  the  ground  though  he  would  be 
a  trespasser  if  he  went  upon  the  other  land  to  get  it.  The  adjoining  owner 
has  the  right  to  cut  off  the  branches  which  overhang  his  land  if  they  constitute 
even  the  slightest  nuisance. 

226.  DUTIES  OF  THE  SURVEYOR.  —  In  making  a  bound- 
ary survey  it  is  by  no  means  the  surveyor's  sole  duty  to  trace  out 
the  mathematical  description  of  the  land  from  a  deed,  though 
many  young  surveyors  are  of  that  impression.     The  problem  of 
retracing  old  boundary  lines  is  not  always,  nor  even  perhaps 
usually,  to  show  where  they  ought  to  have  been  in  the  light  of  docu- 
mentary evidence  contained  in  deeds,  but  to  determine  where 
the  lines  actually  were,  whether  right  or  wrong.     The  doctrine 
of  title  by  Adverse  Possession  (see  §  §  204-7,  et  seq.)  is  of  prime 
importance  here.*     It  is  hoped  that  enough  has  been  said  in 
this   connection  to   allow  the  surveyor  to  form   an  intelligent 

*For  the  student  or  engineer  who  desires  more  fully  to  inform  himself, 
see  an  elaborate  discussion  of  Adverse  Possession,  setting  forth  its  various 
phases  in  different  States,  its  relation  to  the  surveyor's  art,  etc.,  referred  to 
in  footnote  to  §  206. 

153 


! 227  CONTRACTS 

opinion  whether,  in  a  given  case,  the  services  of  a  surveyor,  or 
those  of  an  attorney  and  a  court  of  law  are  required,  with  the 
surveyor's  assistance  as  an  expert  witness.  In  addition  to  the 
references  already  given  (§§  219-21),  there  is  a  digest  of  valuable 
matter  upon  this  point,  together  with  the  rules  for  a  resurvey, 
in  Pence  &  Ketchum's  Surveying  Manual,  p.  159. 

227.  Apparently  anomalous  situations  arise  under  the  above 
rules  as  to  monuments.     With  the  ordinary  stone  monument, 
distinctive  in  shape,  position,  and  markings,  the  surveyor  is  very 
familiar,  and  it  may  not  seem  to  strain  the  point  to  call  the  center 
of  a  stone  wall  (which  may  be  several  feet  thick)  also  a  monument. 
The  foundation  of  a  house,  or  a  pile  of  stones,  or  a  stake,  post, 
or  a  certain  blazed  tree,  also  seems  proper  enough  for  monuments, 
but  one  would  hardly  guess  at  first  that  "  another  man's  land  "  is 
frequently  a  monument.     Yet  such  is  the  case  in  law,  though  noth- 
ing whatever  marks  the  position  of  such  "  other  man's  land." 

Thus  a  description  beginning  at  a  point  that  can  be  conclusively  located, 
and  running  thence  a  fixed  distance  "to  the  land  of  J.  S.,"  carries  all  the  land 
between  the  starting  point  and  said  J.  S.'s  line,  though  the  measured  distance 
falls  rods  short  of  it. 

228.  When  abutters  own  to  the  middle  of  a  highway,  —  a 
common  situation  wrhere  the  public  has  only  an  easement  (see 
§  201)  to  pass  over  the  land,  —  there  is  a  case  requiring  "  con- 
struing." 

Thus,  "Beginning  on  a  highway,  at  such  and  such  a  point,  thence  along  the 
same,"  —  means  along  the  center  line.  Similarly  when  the  "call"  begins  as 
above,  and  then  leaves  the  highway,  and  especially  when  it  runs  to  the  high- 
way, —  these  words  carry  title  to  the  center-line  of  the  road,  unless  there  is 
strong  language  to  prevent. 

229.  The  reason  for  the  apparent  examples  of  unreasonable- 
ness just  noted  is  that  the  policy  of  the  law  is  to  discourage  future 
trouble  about  these  little  strips,  or  fringes  of  land  (probably 
overlooked  in  the  description),  by  passing  them  over  to  him  who 
buys  the  major  portion,  and  to  whom  (if  to  any  one)  they  will  be 
of  most  benefit.     This  is  better  than  to  leave  them  as  trouble 
breeders  in  the  hands  of  the  grantors.     But  in  view  of  the  fore- 
going it  is  not  to  be  supposed  that  the  parties  cannot  control 
the  disposition  of  these  strips  and  remnants.     They  assuredly 
can  accomplish  any  desired  (lawful)  result  if  they  use  appropriate 
language,  but  it  must  be  carefully  chosen.* 

*There  is  an  extensive  and  valuable  article  on  "Law  of  Boundary  Sur- 
veys," by  William  E.  Kern,  in  Eng.  News,  August  28,  1902.  The  surveyor 
should  get  much  important  information  from  it. 

154 


REAL    PROPERTY  §232 

230.  Street  Boundaries.  —  It  has  been  held  in  Massachusetts 
that  when  land  bounded  by  a  way,  either  public  or  private,  is 
granted  or  conveyed  the  law  presumes  it  to  have  been  the  inten- 
tion of  the  grantor  to  convey  to  the  center  of  the  way  if  his  land 
extends  that  far.     Hence  a  deed  bounded  by  an  alley  or  a  way 
carries  the  fee  to  the  middle  and  an  easement  or  right  of  way 
over  the  other  half ,  if  the  grantor  owned  that  far. 

231.  Water  Boundaries. — A  class  of  cases  too  large  to  be 
treated  here  deals  with  boundaries  on  water,  including  streams, 
ponds,  and  the  sea.     These  become  especially  important  when 
the  water  is  unstable  in  its  position,  radically  changing  its  channel, 
cutting   away  from   one   owner   and   depositing   material   upon 
another's  shores  (see  §  232  Accretion),  or  causing  the  formation 
of  islands  in  the  stream,  etc. 

It  is  also  important  to  determine  what  is  meant  by  "  Bounded 
on  the  bank/'  or  "  along  the  bank,"  or  a  description  which  runs 
"  to  the  bank,"  or  in  fact  what  a  "  bank  "  legally  is.  For  a  brief 
statement  upon  these  points  also,  the  student  is  referred  to  Art. 
195  of  Johnson's  Surveying. 

TITLE    BY   OPERATION    OF    LAW 

232.  ACCRETION.  —  We  have  seen  that  in  general  when 
anything  is  firmly  attached  to  land  it  becomes  a  part  of  the  realty, 
and  title  in  the  thing  passes  to  the  owner  of  the  land.     Title  by 
accretion  means  the  acquiring  of  title  to  foreign  soil  through  the 
co-operation  of  the  forces  of  Nature.     Leading  examples  of  this 
are  deposits  of  earth,  mud,  or  silt,  upon  the  slack-water  sides 
of  bends  in  river-channels,  on  estuaries,  and  on  the  sea  shore. 
In  many  American  rivers  this  is  a  very  extensive  and  striking 
phenomenon.     The  material  thus  added  to  one's  land  is  called 
ALLUVION.     The  rule  has  just  been  given  which  determines 
the  ownership  of  this  "  made  "  land. 

A  highly  interesting  and  not  impossible  case  arises  if  we  suppose  that  a 
riparian  owner,  A,  loses  his  entire  lot  by  erosion,  and  the  river  just  reaches 
the  land  of  B,  owning  in  the  rear  of  A's  lot.  Then  suppose  the  river  freakishly 
"makes"  again  a  large  part  of  A's  lot,  or  at  least  deposits  other  materials  in 
the  place  of  it.  Now,  who  owns  along  the  river  shore?  Has  the  river  wiped 
out  A's  title,  made  B  a  riparian  owner,  and  in  addition  presented  him  with 
nearly  the  whole  of  A's  lot? 

When  several  owners  are  bounded  by  a  river  shore,  and  land 
is  made  in  front  of  them,  the  Massachusetts  rule  (which  seems 
most  equitable)  is  that  each  owner  shall  be  given  such  propor- 

155 


§  233  CONTRACTS 

tional  part  of  the  new  frontage  as  he  had  of  the  old  before  the 
making. 

233.  DEDICATION.  —  The  owner  of  a  large  tract  of  land 
so  located  that  it  will  be  more  valuable  in  building-lots  than 
otherwise,  frequently  "  plats  "  this  land.     He  lays  it  out  into 
as   many  lots   as   seems   to   him   expedient,  and  simultaneously 
plans  suitable  streets  for  convenient  access  to  the  lots.     Upon 
filing  the  "  plat  "  at  the  Registry  of  Deeds,  he  usually  writes 
upon  it  language  "  dedicating  "  said  streets  to  the  public  use. 
Hence  a  dedication  is  an  appropriation  of  the  land  to  some  public 
use,  made  by  the  owner,  and  accepted  for  such  use  by,  or  on 
behalf  of,  the  public.     The  effect  is  as  though  the  owner  had 
deeded  the  land  to  the  public,  but  the  formality  of  dedication  is 
employed  instead,  because  "  the  public  "  would  not  be  a  sufficient 
grantee  under  the  rule  requiring  "  sufficient  parties  "  to  a  deed 
(which  is  a  contract). 

234.  Dedications   are   of   two   sorts,    statutory,  wherein   all 
the  steps  are  prescribed  and  must  be  substantially  followed  to 
make    the   dedication   effective;    and   common   law   dedication, 
which  is   much  less   formal.     Here  the   main    features    are   an 
appropriation  by  the  owner,  and  an  acceptance  of  the  benefits 
conferred  by  the  public.     This  mode  of  acquiring  title  will  there- 
fore  be   of  prime  importance  to   the   surveyor  in  determining 
whether,  in  a  given  case,  the  lot  or  tract  surveyed  extends  to 
the  middle  of  the  street.     (See  §  201). 

235.  EMINENT  DOMAIN.  —  The  right  of  eminent  domain 
is  the  lawful  authority  which  exists  in  every  sovereignty  to  control 
and  regulate  rights  of  a  public  nature,  and  to  appropriate  and 
control  individual  property  for  the  public  benefit,  as  the  public 
safety,   necessity,   convenience,   or  welfare  may  demand.     It  is 
but  a  practical  application  of  the  ethical  dogma  "  The  greatest 
good  for  the  greatest  number." 

This  attribute  of  sovereignty  is  also  generally  conferred  upon 
railroads  and  other  public  service  corporations,  upon  the  theory 
(manifestly  sound)  that  such  corporations  are  a  direct  benefit 
to  the  public. 

This  principle  of  eminent  domain,  therefore,  provides  against  an  individual 
who  is  opposed  to  progress  and  refuses  to  sell  land  for  a  railroad  right-of-way, 
for  example.  Suppose  he  owns  land  that  is  strategically  important  for  the 
railroad,  and  seeing  a  chance  to  make  his  fortune,  will  sell  only  at  an  exor- 
bitant price.  Thus  the  largest  communities  might  be  seriously  hampered, 

156 


REAL    PROPERTY  §237 

and  subjected  to  inconvenience  and  loss  through  the  cupidity  of  a  single  grasp- 
ing individual. 

236.  The  procedure  for  obviating '  such  a  difficulty  is  sub- 
stantially as  follows:     The  railroad  deposits  a  bond  (though  all 
jurisdictions  do  not  require  it)  for  an  adequate  amount  in  a  court 
of  competent  jurisdiction,  and  then  enters  upon  the  land.     The 
value  of  the  land  is  assessed  by  a  jury,  just  as  any  other  jury- 
issue  is  tried,  and  the  damages  sustained  by  the  owner  (i.e.  the 
market  value  of  the  land  taken,  plus  the  incidental  injury  to  his 
other  property)  are  paid  to  him  either  by  the  railroad  company 
directly,  or  out  of  their  bond.     In  the  latter  case,  if  there  is  any 
excess,   the  balance  is  returned  to  the  Company.     The  whole 
business  is  frequently  known  as  "  condemnation  proceedings.11 

237.  Eminent   domain  may  be  exercised  by   a  corporation 
only  when  expressly  authorized  by  the  sovereignty.     It  is  an 
inherent  power  in  the  Federal  Government,  and  in  that  of  the 
States  also,  and  it  may  by  them  be  delegated  to  municipal  cor- 
porations.    In  this  category,  therefore,  are  "  takings  "  of  sources 
of  public  water  supply,  places  for  municipal  sewer  outlets,  for 
public  parks,  boulevards,  etc.,  etc.     The  Constitution  provides 
that  no  person  shall  be  deprived  of  his  property  without  due 
process  of  law.     Taking  it  by  eminent  domain  is  taking  it  by  due 
process  of  law. 


157 


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158 


QUESTIONS 

Questions  for  Study  and  Review  on 
Chapter  V 

1.  What  are  the  two  broad  classifications  in  property? 

2.  Define  "  land  "  and  tell  what  it  includes. 

3.  What  is  the  rule  as  to  articles  attached  to  the  soil?     Why  is 
the  distinction  between  realty  and  personalty  important? 

4.  Define  a  "  trade  fixture  "     What  is  the  rule  as  to  its  owner- 
ship? 

5.  What  is  the  noteworthy  feature  as  to  one's  ownership  of  water? 

6.  What  rights  have  riparian  owners  to  the  water  in  streams? 

7.  Classify  subterranean  waters.     What  rights  has  the   land- 
owner therein? 

8.  Explain  "  definite  channel."     Discuss  pollution  of  under- 
ground waters. 

9.  Distinguish  carefully  between   "  watercourses  "  and  surface 
water. 

10.  What  are  one's  rights  in  surface  waters? 

11.  What  are  the  rights  of  drainage  into  watercourses? 

12.  How  may  control  of  surface  waters  become  important  to  a 
municipality,  and  what  common-law  powers  does  a  city  have? 

13.  Recite  upon  stream  pollution  by  manufacturing  wastes,  etc. 

14.  In  general,  what  are  a  city's  rights  of  sewage  disposal  into 
a  stream? 

15.  What  may  a  riparian  owner  do  when  his  land  is  overflowed 
because  of  an  obstruction  in  the  stream? 

16.  What  facts  are  brought  out  wider  the  topic  "  Mill  Privi- 
leges "? 

17.  Explain  carefully  the  word  "  estate."     Distinguish  it  from 
real  estate. 

18.  What  is  the  significance  of  "  fee  simple  "?     What  is  meant 
by  "  paramount  title"? 

19.  Name  three  estates  less  than  fee,  and  tell  how  they  arise. 

20.  What  do  you  understand  by  an  easement?     Give  examples. 

22.  "  Dominant  "  and  "  servient  "  estates,  —  give  meaning  and 
use  of  these  terms. 

23.  Explain  the  easements  relating  to  a  party  wall. 

24.  What  is  an  easement  "  in  gross  "?     What  is  your  especial 
interest  in  highway  easements? 

25.  Recite  upon  the  creation  and  extinction  of  easements. 

159 


CONTRACTS 

SO.   In  quantity,  what  is  the  relation  between  a  fee  and  an  ease- 
ment? 

27.  Name  the  modes  of  acquiring  title  in  land. 

28.  Explain  "  title  by  prescription,"  and  tell  the  relation  of  the 
Statute  of  Limitations  to  it. 

29.  What  situations  does  the  Statute  of  Limitations  provide  for? 

30.  Outline    the   doctrine   of    "  adverse   possession."     Does   it 
seem  fair  to  you? 

31.  Cite   an   illustrative  case  where  adverse  possession  might 
become  important  to  the  surveyor. 

82.  Recite  upon  the  rule  as  to  continuous  occupation. 

83.  Explain  the  difference  between  title  by  prescription  and  by 
adverse  possession. 

34.  What  about  the  prescriptive  right  to  flow  lands ? 

35.  How  does  prescription  relate  to  the  modes  of  disposal  of 
surface  water? 

86.  Analyze  carefully  the  easement  of  lateral  support. 

37.  How  is  lateral  support  related  to  the  average  contractor? 

38.  How  may  the  situation  be  handled  in  putting  down  "  sky- 
scraper "  foundations? 

39.  When  is  the  easement  of  vertical  support  important? 

40.  What  is  a"  deed  "?     For  what  are  deeds  used? 

41.  Why  should  an  engineer  understand  deeds? 

42.  Name  the  five  essentials  of  a  deed. 

43.  Why  is  their  language  often  archaic? 
44-    Name  the  principal  parts  of  a  deed. 

46.    What  are  the  usual  covenants  of  warranty?     What  is  the 
deed  called  which  contains  them? 

46.  State  carefully  the  use  and  misuse  of  quit  claim  deeds. 

47.  What  is  meant  by  getting  an  "  abstract  of  title  "?     Why  is  it 
done,  and  by  whom? 

48.  State  clearly  the  relation  of  deed  descriptions  to  the  sur- 
veyor1 s  work. 

49.  Why  are  rules  of  construction  necessary  for  interpreting 
deeds? 

50.  Mention  some  of  the  leading  rules  of  construction. 

51.  "  The   monuments   control" — discuss   the   meaning   and 
importance  of  this  rule. 

52.  What  quantity  of  land  passes  by  a  deed  containing  a  faulty 
description  of  land? 

160 


QUESTIONS 

58.    The  grant  includes  what?     Rule  as  to  trees? 

54.  What  things  may  be  designated  as  monuments? 

55.  What  points   must   be   carefully   noted   in   interpreting  a 
description  of  land  bounded  by  a  highway?     What  is  the  policy  of 
the  law  in  relation  to  such  cases? 

56.  Recite  upon   water  boundaries.     What  are   the  principal 
questions  involved? 

57.  What  is  meant  by  "  title  by  accretion  "?     When  is  it  im- 
portant? 

58.  Why,  how,  and  for  what  purpose  is  land  "  dedicated  "? 

59.  What  is  the  theory  and  usefulness  of  "  eminent  domain  "? 

60.  The    Court   gave   the  following  instructions   to    the   jury, 
"  When  a  monument  is  mentioned  in  a  deed  and  there  is  no  such 
monument  on  the  ground,  and  the  parties  by  consent  at  the  time,  or 
soon  after,  erect  and  place  a  monument,  intending  it  as  and  for  the 
monument  described,  it  will  be  deemed  afterwards  as  if  it  had  been 
standing  at  the  time,  and  it  must  govern,  although  neither  courses 
nor  distances,  nor  computed  contents  correspond  with  such  bound- 
aries."     Were  these  instructions  correct? 

61.  In  a  deed  a  portion  of  the  description  is  as  foll&ws:  "  Thence 
Northerly  by  said  Railroad  Company's  land  about  J^.16  2-3  feet  to 
the  road  near  the  Arch  Bridge,  so-called,  thence  Southwesterly  by  said 
road  about  J+SS  feet  to  stone  wall,  thence  Southerly  by  said  wall." 
The  wall  began  on  the  side  line  of  the  street.     Does  the  description 
carry  the  land  to  the  center  of  the  road  which  crosses  the  Arch  Bridge? 


161 


CHAPTER  VI 
CONTRACTS  OF  ASSOCIATION 

An  undertaking  is  too  large  to  be  handled  by  individuals;  they  do  not  desire 
a  partnership;  perhaps  thousands  are  willing  to  risk  something  in  it,  — is 
the  status  of  this  aggregation  of  persons  and  capital  the  same  as  that  of  an 
individual,  or  has  the  corporate  entity  absorbed  the  personalities  of  those 
who  compose  it?  Under  CORPORATIONS  it  will  be  shown  that  the  law  of 
contracts  permeates  the  very  essence  of  corporate  life,  since  the  cor- 
poration rests  upon  contracts  with  the  State,  with  its  members,  and 
mutually  between  the  members. 

The  engineer's  understanding  of  a  corporation's  powers  can  only  be 
based  upon  an  intelligent  conception  of  the  above  contracts.  He  deals 
with  a  corporation  "at  his  peril,"  —  to  what  points  must  scrutiny  be 
directed?  He  buys  stock  in  a  corporation,  —  what  are  the  privileges, 
immunities,  and  liabilities  thereby  accruing  to  him? 

But  if  a  corporation  is  not  desired  there  is  a  more  ancient  type  of 
association  known  as  a  PARTNERSHIP.  This,  too,  is  pre-eminently  a  "con- 
tract" subject,  since  the  partners'  mutual  and  public  relations  rest 
wholly  upon  the  contract  between  themselves,  whether  it  be  express  or 
implied.  Can  the  partner  bind  his  associates?  What  are  the  liabilities 
of  each,  and  how  may  they  be  terminated?  How  and  when  may  a  partner- 
ship be  dissolved?  These  and  many  other  incidental  problems  will  be 
touched  upon  in  outlining  the  principles  upon  which  these  associations 
rest.  Since  an  engineer  frequently  has  to  deal  with  a  partnership,  or 
joins  forces  with  a  colleague  and  forms  one,  or  may  become  interested 
in  corporations  in  various  .ways,  knowledge  of  these  principles  will  be 
valuable. 

CORPORATIONS 

At  first  glance  corporation  law  may  hardly  seem  to  be  a 
contract  subject,  yet  the  contractual  powers  of  corporations  should 
interest  the  engineer.  In  outlining  these  powers  it  will  be  neces- 
sary to  show  certain  important  characteristics  of  corporations. 
This  being  done,  many  questions  of  contract  will  have  been 
covered  incidentally.  It  is  worth  while  for  the  engineering 
student  to  familiarize  himself  with  the  elements  of  corporation 
law,  in  view  of  the  vast  amount  of  business  done  to-day  by  this 
type  of  organization.  Moreover,  the  great  constructive  opera- 
tions upon  which  engineers  are  being  more  and  more  engaged, 
can  only  be  undertaken  by  aggregations  of  capital  in  corporate 
form. 

238.  DEFINITION.  — -  A  corporation  is  a  collection  of  in- 
dividuals united  by  authority  of  law  under  a  special  name,  with 
the  capacity  of  perpetual  succession  and  of  acting  in  many  re- 
spects as  an  individual.  It  is  regarded  as  a  distinct  legal  entity, 

162 


CONTRACTS    OF   ASSOCIATION  §240 

existing  only  in  contemplation  of  law,  and  by  virtue  of  the  opera- 
tion of  statutory  law.  It  has  an  existence  separate  and  distinct 
from  that  of  the  members  who  compose  it.  This  "  distinct 
entity  "  theory  is  fundamental  to  a  proper  notion  of  corporations, 
ts  constantly  alluded  to,  and  furnishes  the  key  to  many  situations. 

It  has  been  frequently  held  that  where  one  man  has  come  into  possession 
of  all  the  stock,  yet  this  does  not  allow  him  to  convey  away  the  legal  title  to 
the  corporation's  property  in  his  own  name.  The  title  must  be  transferred 
in  the  name  of  the  corporation. 

The  distinct  entity  doctrine  is  also  shown  in  the  residence,  or 
domicile,  of  a  corporation,  which  is  that  of  the  State  in  which  it 
was  incorporated,  irrespective  of  the  stockholders'  residence. 

In  a  famous  case,  English  corporations  were  required  to  be  registered, 
under  a  British  regulation.  It  was  argued  that  as  the  bulk  of  the  stock  was 
held  outside  of  England,  therefore  it  was  not  an  English  corporation  and  so 
not  amenable  to  the  British  law.  But  this  view  was  set  aside,  and  it  was  held 
to  be  an  English  corporation. 

239.  KINDS.  —  All    corporations    have   much    in    common 
though  there  are  numerous  types  and  classifications.     According 
to  their  object,  they  are  eleemosynary,  or  those  created  to  carry 
out  some  charitable  object;  religious,  which  term  is  self-explana- 
tory ;  and  civil,  embracing  all  others.     With  civil  corporations  we 
shall    principally    deal.     Further    subdivisions    are    public,    or 
municipal,  and  private  civil  corporations ;  public,  for  the  purposes 
of  government  and  management  of  public  affairs,  like  the  organi- 
zation of  cities  and  villages ;  and  private,  such  as  manufacturing, 
banking,  and  railroad  corporations,  etc.,  etc.     Private  corporations 
may  again  be  divided  into  stock  and  non-stock  corporations. 

240.  CORPORATIONS      and      PARTNERSHIPS      COM- 
PARED. —  It  is  very  helpful  to  study  the  two  leading  forms  of 
associations,  corporations  and  partnerships,  by  frequently  con- 
trasting features  similar  though  quite  distinct;  otherwise  many 
elusive  characteristics  of  both  subjects  are  hard  to  properly  com- 
prehend.    Let  us  consider  their  leading  differences  at  once. 

There  are  three  conspicuous  differences: 
(1)    In  a  partnership  the  doctrine  of  delectus  personalis*  is 
highly  important. 

This  is  because  a  partner  is  selected  for  his  personal  qualifications,  and 
his  interest  in  the  business  is  not  transferable  except  by  consent  of  all  the  other 
partners.  And  if  a  partner  dies  the  partnership  necessarily  comes  to  an  end. 

But  in  a  corporation  the  conditions  are  just  the  reverse.     Shares  in  it  are 

*Litcratty,  "the  choice  of  persons,"  meaning  the  right  of  a  partner  to 
determine  what  persons  shall  be  introduced  into  the  partnership  as  ne\t 
members. 

163 


§241  CONTRACTS 

freely  transferable  without  regard  to  the  wishes  or  consent  of  other  stock' 
holders,  and  the  death  of  a  shareholder  has  no  effect  on  the  corporation.  The 
opening  definition  pointed  out  that  in  a  corporation  there  was  the  capacity 
for  perpetual  succession. 

(2)  Any  partner  has  the  legal  power  to  act  as  agent  for  the 
others.     Within  the  scope  of  the  business,  he  may  bind  them 
absolutely  by  his  action.     But  in  a  corporation,  no  shareholder 
has  any  power  whatever  to  bind  the  others,  since  the  whole 
authority  rests  with  the  board  of  Directors. 

(3)  In  a  partnership,  each  partner  is  liable  for  all  the  firm 
debts.     In  a  corporation  the  liability  of  the  stockholder  (aside 
from  statutes)  is  to  pay  money  only  up  to  the  par  value  of  the 
stock   subscribed   for   by   him.     This    feature   has    contributed 
largely  to  the  growth  of  corporations  in  recent  years.     Many 
partnerships  have  been  incorporated  with  very  few  changes. 

Morawetz,  a  leading  authority  on  corporations,  adds  to  the 
foregoing:  — 

(a)  While  both  are  formed  by  the  mutual  agreement  of  those 
who  compose  them,  the  partnership  relation  may  be  established 
by  any  persons,  at  any  time,  and  is  dependent  only  upon  the  laws 
of  contract  and  of  agency;  but  a  corporation  cannot  lawfully  be 
formed  without  the  authority  of  the  Legislature. 

(6)  At  law,  the  members  of  a  firm  are  always  treated  as  in- 
dividuals, and  the  firm,  as  such,  is  not  recognized  (e.g.  a  deed  of 
real  estate  owned  by  a  firm  must  be  signed  by  the  members 
individually,  as  the  deed  is  not  effective  if  signed  in  the  firm 
name).  But  a  corporation  is  considered  as  one  person  ("  dis- 
tinct entity ")  and  its  constituent  parts  are  disregarded.  A 
partner  cannot  sue  another  at  laWj  while  a  corporation  may  be 
sued  by  one  of  its  members. 

(c)  Partnership  is  a  relation  of  special  trust  and  confidence 
personally,  and  the  act  or  contract  of  one  partner  is  the  act  of 
all;  while  in  a  corporation  the  business  is  managed  by  agents, 
selected  by  a  majority  vote,  and  the  personal  element  is  very 
small. 

241.  OTHER  FORMS  of  ASSOCIATION.  —  On  the  line 
between  distinct  corporations  and  strict  partnerships,  are  joint- 
stock  companies.  They  possess  many  of  the  characteristics  of 
both  forms  of  association.  There  are  also  unincorporated  societies 
of  numberless  sorts ;  syndicates  formed  for  the  consummation  of 
some  particular  purpose;  building  and  loan  associations,  which 

164 


CONTRACTS    OF   ASSOCIATION  §243 

may  or  may  not  be  incorporated;  fraternal,  benevolent,  and  pro- 
tective associations,  etc.  Leading  ear-marks  for  identifying 
which  are  really  corporations  are :  Do  they  have  the  right  of  con- 
tinuous succession,  under  a  special  name,  without  being  subject 
to  dissolution  or  change  of  identity  by  death  of  members?  Can 
they  take  and  grant  property,  sue  and  be  sued  in  the  corporate 
name,  etc.,  etc.? 

THE  CORPORATION 

242.  ESSENTIALS.  —  Certain  things  are  essential  in  creating 
a  valid  and  legal  corporation. 

First,  there  must  be  a  grant  of  authority,  or  charter  from  the 
State.  The  general  repository  of  the  power  to  create  corporations 
is  in  the  State  Legislatures,  except  so  far  as  it  may  be  controlled 
by  restrictions  in  the  Federal  or  State  Constitutions.  Congress 
has  a  very  limited  power  in  this  respect. 

Second,  the  grant  of  power,  or  charter,  must  be  accepted*  by  the 
corporators,  constituting  an  agreement  or  contract  with  the  State. 

Third,  there  must  be  an  agreement  between  the  stockholders 
and  the  corporation. 

243.  THEORY  of  CORPORATE  POWERS.  —  All  the  above 
points   immediately   involve   the   doctrines   of   contract.     Early 
in  the  last  century  (1810)  in  the  famous  Dartmouth  College  case, 
the  United  States  Supreme  Court  established  the  fact  that  the 
charter  is  a  contract  between  the  State  and  a  corporation,  within 
the  meaning  of  the  Constitutional  provision  that  no  State  shall 
pass  a  law  impairing  the  obligation  of  an  existing  contract.     This 
meant,  practically,  that  no  State  could  pass  a  law  altering  or 
taking  away  any  of  the  rights  or  privileges  previously  granted  to 
a  corporation.     As  this  would  effectually  prevent  the  public  from 
reforming  grave  abuses  of  corporate  power,  should  they  arise, 
nearly  every  State  subsequently  passed  statutes  that  no  charter 
should  thereafter  be  granted  except  subject  to  being  altered  or 
repealed  by  the  Legislature.     This  is  law  to-day. 

This  doctrine  that  the  charter  is  a  contract  is  worked  out  as 

*  Acceptance  of  Charter:  If  a  special  act  has  been  passed  by  the  Legis- 
lature it  is  regarded  as  an  offer,  open  until  formally  accepted  by  an  act  of 
the  individual  corporators;  or  until  the  acceptance  could  be  fairly  implied 
from  their  acts  as  a  corporation.  And  like  every  other  offer  to  contract,  the 
person  who  accepts  must  fulfill  the  letter  of  the  offer  exactly.  In  the  case  of 
the  corporation,  if  the  terms  of  the  offer  (Act  of  Legislature)  are  not  strictly 
complied  with  there  is  no  corporation  formed. 

165 


§244  CONTRACTS 

follows:  The  corporators  allege  that  benefits  will  flow  to  the 
public  as  a  result  of  their  incorporation,  and  these  form  the  con- 
sideration for  the  rights,  benefits,  immunities,  and  privileges  which 
the  State  confers  upon  them  by  its  act  of  incorporation.  It  will 
be  readily  admitted,  in  the  case  of  some  of  the  great  public-service 
corporations,  that  this  contract  theory  is  sound,  but  in  the  case  of 
the  so-called  "  predatory  "  variety  it  is  not  so  easily  seen. 

244.  PROMOTION.  —  Generally  some  individual  conceives 
the  idea  of  having  his  associates  become  incorporated.     He  takes 
the  lead  in  booming  the  enterprise,  securing  charter  members, 
selling  stock  on  prospectus,  etc.,   and  doing  everything  in  his 
power  to  float  the  scheme.     Such  an  individual  is  called  a  "  pro- 
moter." 

An  engineer  may  legitimately  and  properly  act  as  a  promoter  when  the 
scheme  rests  upon  a  sound  engineering  project  about  which  he  possesses 
special  and  intimate  knowledge.  If  the  scheme  is  really  good  and  intrinsically 
meritorious,  then  the  berth  of  a  successful  promoter  is  likely  to  be  a  highly 
comfortable  one,  since  he  not  infrequently  acquires  a  sizable  block  of  stock 
for  his  services. 

Promoter's  Responsibilities.  First,  is  the  corporation  liable 
upon  contracts  made  by  the  promoter?  It  is  to  be  remembered 
that  frequently  his  activities  are  greatest  before  the  corporation 
actually  exists.  It  is  generally  held  that  promoters  are  personally 
liable  on  contracts  made  by  them  unless  exempt  by  the  terms 
of  the  contract ;  or  unless  the  corporation  expressly  or  impliedly 
adopts  (see  §§  140  and  146  [5])  them  after  its  organization,  as 
by  accepting  their  benefits. 

It  seems  that  the  law  does  not  prohibit  the  circulation  of  a  prospectus 
of  very  roseate  hue,  but  it  must  contain  no  positive  misstatement  of  facts.  If 
such  a  statement  is  made  by  a  promoter,  he  will  be  liable  for  fraud;  and  if 
made  after  incorporation,  the  company  will  be  liable  on  the  same  grounds 
for  the  tort  of  its  agent.  (See  §  169.)  In  case  a  subscription  is  thus  obtained, 
the  subscriber  can  repudiate  the  contract  and  compel  the  corporation  to 
return  the  money  paid. 

245.  Subscription.  —  Under  the  statutes  of  some  States,  it 
is  required  that  the  capital  stock  shall  be  subscribed  and  paid  for 
either  wholly  or  in  part  before  the. charter  can  be  issued;  but, 
,-speaking    generally,   these   are    not    necessary   prerequisites   to 
corporate  existence.     Also,  some  of  the  States  require  that  the 
"  articles  "  or  certificate  of  incorporation  shall  show  the  amount, 
•of  the  capital  stock,  the  amount  actually  paid  in,  and  give  the 
names  and  residences  of  all  the  stockholders,  with  the  amount  of 
stock  subscribed  by  each. 

166 


CONTRACTS    OF   ASSOCIATION  §247 

A  practical  question  is,  "  What  is  the  effect  of  non-compliance 
with  such  statutory  requirements?"  The  penalties  are:  — 

First:  They  afford  a  basis  for  an  action  to  be  brought  by  the 
State  looking  to  the  forfeiture  of  the  charter. 

Second:  They  sometimes  result  in  rendering  the  incorporators 
liable  as  co-partners,  on  the  ground  that  as  they  have  failed  to 
comply  with  the  law,  they  are  not  entitled  to  the  privileges  and 
exemptions  of  the  corporate  form  which  compliance  would  have 
conferred  upon  them. 

Third:  Some  statutes  impose  a  penalty  on  the  directors  and 
officers  by  making  them  liable  for  all  debts  contracted  before  the 
statutory  requirements  have  been  complied  with. 

With  reference  to  the  party  subscribing,  it  is  held  that  when 
the  corporation  is  actually  in  existence,  the  contract  for  sub- 
scription may  be  either  expressed  or  implied,  and  is  binding  to 
the  same  extent  as  any  other  contract  from  the  moment  it  is 
entered  into. 

246.  INCORPORATION.  —  Corporations      were      formerly 
chartered  by  special  acts  of  the  Legislature.     The  multiplicity 
of  modern  business  affairs  which  can  best  be  transacted  by  an 
organization  in  this  form  has  led  to  the  "  corporation  habit,"  if 
it  may  be  so  expressed.*     Since  a  corporation  possesses  certain 
extensive  advantages  which  a  partnership  does  not  have,  great 
numbers  of  corporations,  chartered  for  widely  varying  purposes, 
have  sprung  up.     This  has  led  to  the  enactment  of  general  stat- 
utes in  all  the  States  specifying  in  great  detail  the  steps  necessary 
to  form  a  corporation. 

For  lines  of  business  not  mentioned  in  the  statute,  a  special 
act  of  the  Legislature  will  be  necessary. 

While  it  is  a  very  simple  matter,  relatively  speaking,  to  form  a  corpora- 
tion, every  detail  specified  in  the  statute  must  be  complied  with,  or  else  no 
incorporation  is  accomplished.  For  this  reason,  the  services  of  a  competent 
attorney  to  attend  to  these  details  will  be  essential,  or  grave  difficulties  are. 
likely  to  be  promptly  encountered. 

247.  The  usual  proceeding  under  a  statute  is  that  the  persons 
who  propose  to  form  a  corporation,  or  a  specified  number  thereof, 
sign  and  acknowledge  an  instrument  called  the  articles  of  asso- 
ciation, giving  the  name  of  the  corporation,  its  object,  principal 
place  of  business,  amount  of  its  capital  stock,  the  number  of 
shares,  etc.,  which  is  duly  filed  with  the  proper  State  officer,  as 

*See  Appendix  Note  22.     "Advantages  in  Corporate  Form." 

167 


§  248  CONTRACTS 

Secretary  of  State,  or  Commissioner  of  Corporations,  When  all 
the  statutory  provisions  have  been  complied  with  the  charter 
is  granted  as  a  matter  of  course  by  the  proper  State  official.  The 
Legislature,  freed  from  considering  these  multitudinous  special 
instances,  is  thus  enabled  to  take  up  other  legislative  work. 

248.  CONSTRUING  THE  CHARTER  and  IMPLIED 
POWERS.  —  The  charter  of  a  corporation  serves  a  two-fold 
purpose  —  it  operates  as  a  law  conferring  upon  the  corporators 
the  right  or  franchise  to  act  in  a  corporate  capacity ;  and  it  also 
contains  the  terms  of  the  fundamental  agreement  among  the 
corporators.  Hence  it  is  to  be  construed  as  any  other  written 
instrument  would  be,  the  leading  object  being  to  discover  the 
intention  of  the  parties. 

Thus,  those  who  have  become  members  of  a  corporation  have  proved 
an  intent  to  prosecute  the  business  expressly  set  forth  in  the  charter,  and  they 
do  not  intend  to  enter  into  any  other  speculation.  This  is  an  important  prin- 
ciple upon  which  rest  the  rights  of  minority  stockholders,  when  a  radical 
departure,  or  innovation  in  the  corporate  affairs  is  attempted  by  the  majority, 
such  as  changing  the  kind  of  business,  absorbing  another  company,  etc.  (See 
also  §  249.) 

It  is  clear  also  that  the  intention  of  the  Legislature  is  to  enable 
the  corporators  so  to  act  as  to  carry  out  the  business  for  which 
the  corporation  is  formed.  From  which  it  follows  that  every 
act  of  a  corporation  which  is  not  affirmatively  authorized  by  its 
charter  is  in  excess  of  its  corporate  powers  as  conferred  by  the 
State,  and  is  also  a  departure  from  the  primary  agreement  between 
the  original  members  of  the  company.  In  pursuing  this  line  of 
reasoning,  the  Supreme  Court  of  the  United  States  has  said:  "  It 
remains  true  that  the  measure  of  the  powers  of  a  corporation  is 
to  be  found  in  its  charter;  but  it  is  equally  true  that  what  is 
fairly  implied  is  as  much  granted  as  what  is  expressed,  and  that 
the  enumeration  of  these  powers  implies  the  exclusion  of  all 
others." 

As  the  foregoing  paragraphs  indicate,  a  large  body  of  corpora- 
tion law  deals  with  this  doctrine  of  implied  powers.  The  principle 
already  outlined  is :  A  corporation  has  no  power  to  enter  into  a 
contract  that  is  not  expressly  or  impliedly  authorized  by  its 
charter ;  but  any  contract  that  is  reasonably  necessary  for  carrying 
out  the  powers  expressly  conferred  is  impliedly  authorized.  A 
contract  is  said  to  be  ultra  vires  and  therefore  void  if  it  is  beyond 
the  power  as  measured  by  the  charter  to  make  such  contract. 

A  list  of  powers  generally  considered  to  be  implied  is :  to  sell 

168 


CONTRACTS    OF    ASSOCIATION  §249 

and  to  purchase  such  real  and  personal  property  as  the  corporate 
purposes  require;  to  borrow  money  whenever  the  nature  of  the 
business  renders  it  expedient  or  necessary ;  to  issue  bonds  for  any 
purpose  for  which  a  debt  could  be  contracted;  to  make  and 
endorse  negotiable  paper,  if  that  is  a  usual  or  proper  means  of 
accomplishing  the  purposes  for  which  the  corporation  was  created. 

Common  Law  Powers  of  a  Corporation.  As  hinted  elsewhere,  statutes 
are  generally  framed  from  the  timber  furnished  by  the  common  law.  This  is 
as  true  of  corporations  as  of  any  other  branch.  Thus  a  corporation  enjoys 
certain  powers  almost  irrespective  of  statutes,  though  in  fact  the  following 
powers  have  been  quite  generally  inserted  in  the  statutes. 

(1)  The  right  to  the  use  of  the  corporate  name; 

(2)  The  right  to  perpetual  succession; 

(3)  The  right  to  acquire,  hold,  possess,  and  dispose  of  corporate  property; 

(4)  The  right  to  appoint  corporate  officers  and  agents ; 

(5)  The  right  to  establish  by-laws  for  the  government  of  the  corporation, 
its  officers,  and  members. 

(6)  The  right  to  sue  and  be  sued. 

The  doctrine  of  ultra  vires  also  occupies  a  prominent  position 
in  the  body  of  corporation  law,  since  the  line  between  legitimate 
contracts  made  under  implied  powers,  and  those  which  go  a  step 
further  and  can  with  certainty  be  said  to  exceed  the  powers,  is 
often  a  very  hard  line  to  draw. 

249.  ULTRA  VIRES.  Ancient  Doctrine.  —  If  a  corporation 
makes  a  contract  which  is  unauthorized  by,  or  in  violation  of,  its 
charter,  or  entirely  outside  the  scope  of  its  express  powers  (whether 
given  by  charter  or  statute),  the  contract  is  void  upon  the  ground 
of  incompetency.  (See  §  23.)  This  is  because  of  a  total  want 
of  power  to  enter  into  the  contract;  hence  it  is  absolutely  void 
from  the  start.  Such  a  contract  can  never  be  made  good  by 
ratification,  nor  can  it  ripen  into  an  implied  contract  by  reason 
of  having  been  performed,  since  the  law  will  not  imply  validity 
on  an  unlawful  contract.  (See  §  70,  and  Thompson  on  Corpora- 
tions, §  5968.) 

"The  reasons  a  corporation  is  not  liable  upon  an  ultra  vires  contract  are 
found:  — 

(a)  in  the  interests  of  the  public  that  the  corporation  shall  not  transcend 
the  powers  granted; 

(6)  the  interests  of  the  stockholders  that  the  capital  stock  shall  not 
be  risked  in  enterprises  not  contemplated  in  the  charter,  and  therefore  not 
authorized  by  the  stockholder  in  subscribing  for  the  stock; 

(c)  the  fact  that  the  charter  which  contains  the  granted  powers  is  a 
public  statute,  of  which  all  parties  are  bound  to  take  notice  and  be  governed 
thereby."  (11  Allen  65,  and  131  U.  S.  37.) 

Modern  View.  —  Except  in  "  quasi-public-private  corpora- 
tions," the  public  has  no  direct  interest  whatever  in  the  nature  of 


§  249  CONTRACTS 

the  powers  vested  in  them.  Corporations  are  now  chiefly  organ- 
ized under  general  statutes,  and  not  by  special  act  of  Legislature, 
and  thus  the  charters  are  not  promulgated  publicly,  and  it  may 
be  difficult  to  consult  them.  To  require  a  stranger  to  fully  inform 
himself  upon  the  contents  of  such  charters  would  place  an  un- 
reasonable hardship  upon  him. 

In  modern  times,  frequently  a  great  number  of  purposes  are 
enumerated  in  the  articles  of  incorporation,  and  thus  the  corpora- 
tion will  have  almost  unlimited  scope  along  business  lines.  This 
removes  the  objection  mentioned  above,  that  capital  shall  not 
be  subjected  to  risks  not  contemplated  in  the  charter. 

Practical  Status  of  Ultra  Vires.  —  The  engineer  or  business 
man  will  wish  to  know  what  weight  the  doctrine  has  relative 
to  corporate  contracts,  existing,  prospective,  or  fully  executed 
and  past.  Numerous  cases  seem  to  establish  the  following  prop- 
ositions : 

(1)  Courts  seldom  recognize  the  claim  that  a  contract,  other- 
wise  unobjectionable,    is   void   because   beyond   the    chartered 
powers  of  the  corporation,  if  to  allow  the  claim  of  ultra  vires 
(when  set  up  as  a  defense)  would  defeat  justice,  or  shield  one  in 
wrongdoing. 

(2)  The  doctrine  of  ultra  vires  is  not  usually  applied  when  it 
is  claimed  as  a  defense  by  a  person  who  has  received  a  benefit 
through  the  unlawful  act  which  is  said  to  be  ultra  vires. 

(3)  If  the  act  complained  of  is  an  abuse  of  power  merely,  then 
the  State  alone,  acting  through  its  Attorney  General,  can  act. 

(4)  The  doctrine  of  "  estoppel  "  is  applied  in  the  case  of  com- 
pleted contracts,  to  the  effect  that  the  claim  of  ultra  vires  shall  not 
be  allowed.     This  is  held  to  dispose  of  the  theory  that  persons 
dealing  with  a  corporation  are  bound  to  take  notice  of  their 
charter  powers. 

The  doctrine  of  "estoppel"  here  referred  to  means  that  where  one  by 
his  words  or  conduct  willfully  causes  another  to  believe  in  the  existence 
of  a  certain  state  of  facts,  and  induces  him  to  act  on  that  belief  so  as  to  alter 
his  previous  position,  the  first  person  is  precluded  (i.e.  "estopped")  from 
averring  against  the  second  person,  that  a  different  state  of  things  did  exist 
at  the  time.  To  paraphrase  the  point,  one  does  not  have  the  right  to  "blow 
hot,  and  then  cold,"  even  in  law,  —  a  principle  which  has  wide  application. 

Thus,  in  applying  the  doctrine  of  "  estoppel"  the  courts  hold 
(a)  that  if  there  has  been  no  express  violation  of  law,  the  cor- 
poration is  estopped  by  its  own  contract  or  conduct  from  setting 

170 


CONTRACTS    OF   ASSOCIATION  §252 

up  as  a  defense,  that  it  was  not  in  its  power  to  make  such  contract, 
when  sued  for  the  enforcement  of  it. 

(6)  that  where  a  private  corporation  enters  upon  a  contract 
in  excess  of  its  granted  powers  and  has  received  the  benefits  of  the 
contract  which  the  other  parties  acted  upon,  the  corporation 
is  estopped  to  repudiate  the  contract  on  the  ground  that  it  is 
ultra  vires.  And  repeatedly,  the  courts  have  held 

(<;)  that  where  a  contract  with  a  corporation,  —  the  making 
of  which  is  beyond  the  chartered  powers,  has  been  fully  executed 
by  both  parties  to  the  contract,  neither  of  them  can  assert  its 
invalidity  as  a  cause  of  action  against  the  other. 

250.  Things  which  a  corporation  can  not  do  are :  to  bind  itself 
by  an  accommodation  note  or  bill;  to  enter  into  a  contract  of 
partnership;  and  in  general,  to  subscribe  for,  purchase,  or  hold 
stock  in  another  corporation,  except  that  it  may  take  such  stock 
in  good  faith  as  security  for  a  previous  debt,  and  hold  the  same 
temporarily.     Of  course  the  charter  may  expressly  authorize  these 
things,  in  which  case  the  rule  will  not  apply.     It  cannot,  in  some 
jurisdictions,  purchase  any  of  its  own  stock,  either  for  the  purpose 
of  selling,  holding,  or  retiring  it,  though  it  may  take  its  own  stock 
in  payment  of  a  debt  due  it. 

251.  TRANSACTION  of  BUSINESS.  —  The  business  of  the 
corporation  is  transacted  by  a  Board  of  Directors,  or  managers, 
and  such  other  officers  and  agents  as  may  be  necessary,  all  of 
whom  may  bind  the  corporation  by  acts  done  within  the  scope 
of  their  authority.     The  Directors  have  the  power  to  bind  the 
corporation  by  any  act  or  contract  within  the  powers  conferred 
by  the  charter  except  that  they  cannot  effect  any  great  and  radical 
change  in  the  organization  of  the  body  without  the  consent  of- 
the  stockholders. 

The  distinct  entity  theory  is  illustrated  by  the  fact  that  stockholders 
have  the  same  right  to  contract  with  the  corporation  as  if  they  were  strangers. 
But  an  officer,  as  such,  cannot  contract  with  himself  on  behalf  ot  the  cor- 
poration, or  convey  to  himself  in  his  individual  capacity  unless  he  acts  under 
the  immediate  direction  of  a  superior  officer. 

252.  The  officers  of  a  corporation,  being  entrusted  with  its 
affairs,  and  custody  of  the  funds  of  all  the  stockholders,  stand 
in  a  fiduciary  relation  toward  it  and  them.     Their  position  is 
practically  that  of  trustees,  charged  with  the  care  of  the  corporate 
funds,  and  they  are  required  to  exercise  an  even  greater  care  thao 

171 


§  253  CONTRACTS 

they  would  of  their  own,  and  are  personally  responsible  for  any 
misapplication  of  such  funds,  or  loss  through  their  negligence. 

The  underlying  reason  for  this  is  in  the  application  of  the  equitable 
doctrines  of  trusts  (a  large  and  important  branch  of  jurisprudence  which 
cannot  be  entered  upon  here,  see  §  95).  Thus  it  is  that  the  directors  of  a  cor- 
poration cannot  directly  or  indirectly  derive  a  personal  advantage  or  profit 
from  their  position  which  is  not  enjoyed  in  common  by  all  the  stockholders. 
Secret  profits  made  by  them  in  transaction  of  company  business  belong  to 
the  company. 

253.  LIABILITY  in  TORT.  —  A  private  corporation  is  liable 
to  outside  persons  for  the  torts  of  its  servants  and  agents  com- 
mitted in  the  course  of  their  employment,  to  the  same  extent  that 
a  natural  person  would  be,  as  a  principal.     This,  it  will  be  per- 
ceived, is  the  reason  for  the  liability  of  railroad  corporations  in 
practically  all  of  their  damage-suits. 

254.  DISSOLUTION.  —  We  may  mention  briefly  the  ways 
in  which  a  corporation  is  dissolved,  or  its  existence  is  ended.     If 
the  charter  specifies  that  it  shall  exist  for  a  limited  time  only, 
when  the  time  elapses,  the  corporation  ipso  facto  expires.     This 
arrangement  is  not  generally  made,  nowadays.     The  corporation 
also  may  be  dissolved  by  an  act  of  the  Legislature  repealing  its 
charter,  under  the  State's  reserved  right  to  repeal ;  by  surrender 
of  its  charter  with  the  consent  of  the  State;  by  forfeiture  of  its 
charter  by  reason  of  mis-use,  or  of  non-use.     The  commonest 
method  is  by  surrender. 

If  the  project  has  been  voluntarily  abandoned,  or  if  it  becomes 
impossible  to  go  on  with  it  for  any  reason  whatever,  it  is  the 
company's  duty  to  its  creditors  to  call  in  whatever  capital  may 
be  necessary  to  settle  up  its  affairs;  and  in  such  a  case  every 
shareholder  when  called  upon  by  the  corporate  officers  will  be 
liable  to  contribute  his  proportionate  amount  up  to  the  full  price 
of  his  shares.  (See  §  257.) 

THE    STOCKHOLDER 

255.  STOCK  and  CAPITAL.  —  The  capital  of  a  corporation 
is  the  fund  with  which  it  conducts  its  business,  and  embraces  all 
its  property,  both  real  and  personal.     The  capital  stock  is  the 
amount  of  capital  prescribed  by  its  charter  to  be  subscribed,  or 
contributed  at  the  outset,  and  remains  unvaried  unless  changed 
according  to  the  terms  of  the  charter,  or  by  an  act  of  the  Legis- 
lature.    In  theory,  the  aggregated  funds  of  the  corporators  form 
the  capital,  or  capital  stock  of  the  corporation.     To  the  community 

172 


CONTRACTS    OF    ASSOCIATION  §257 

at  large,  the  capital  stock  announces  the  extent  of  the  means 
contributed,  and  thus  enables  every  one  to  form  an  opinion  of 
the  credit  to  which  the  corporation  is  entitled.  The  amount  of 
capital  stock  will  depend  upon  the  probable  amount  of  money 
required  to  achieve  the  end  for  which  the  corporation  was  created. 
If  a  statute  requires  a  specified  amount  of  the  capital  stock  to  be 
paid  in,  before  the  corporation  can  do  any  business,  there  is  thus 
given  additional  information  as  to  its  resources. 

256.  CONTRACT    of    MEMBERSHIP.  —  The   stockholders 
are  bound  together  by  a  contract,  set  forth  in  the  charter  (or  in  the 
articles   of  incorporation,   if  created  under  general  laws).     But 
this  is  not  an  ordinary  common  law  contract,  since  it  is  illegal 
to  enter  into  it  in  the  absence  of  an  enabling  act,  or  a  charter  —  a 
reason  why  the  corporation  must  be  formed  strictly  in  accordance 
with  statutory  requirements.     (See  §§  246  and  240  [a].)     Every 
person  who  subscribes  for  shares  agrees  to  associate  with  the 
other  members  upon  the  terms  and  conditions  indicated  in  the 
charter. 

Among  the  things  agreed  to  by  him  is  that  he  will  contribute  to  the 
capital  stock  the  amount  subscribed  for  by  him,  and  the  corporation  may 
enforce  its  rights  to  be  so  paid.  In  general,  the  total  stock  must  have  been 
subscribed  before  the  corporation  can  proceed  against  any  subscriber. 

257.  Kinds  of  Stock.  —  A  share  of  stock  is  the  right  to  share 
in  the  surplus  of  a  corporation  and  ultimately,  upon  dissolution, 
to   share  in   the   net   assets   remaining.     A  stock-certificate  is   a 
written  acknowledgment  by  the  corporation,  of  the  rights  and 
interests    of    the    stockholder   in   the    corporate   property    and 
franchise. 

The  common  stock  entitles  the  holder  to  a  pro  rata  division  of 
the  profits,  if  there  are  any.  Some  corporations  issue  no  pre- 
ferred stock,  but  only  common.  The  preferred  stock  is  limited 
in  its  participation  in  the  profits,  however,  to  the  amount  which 
it  is  stipulated  that  it  shall  receive.  Up  to  the  stipulated  amount, 
the  preferred  stock  takes  all  the  dividends,  even  though  there  is 
none  remaining  for  the  common  stock. 

Thus  suppose,  for  example,  that  a  corporation  has  made  an  annual  net 
profit  upon  its  capital  of  50%,  and  that  there  is  7%  preferred  stock  outstand- 
ing. In  this  case,  if  the  directors  voted  it,  43%  would  go  to  the  common 
stock,  and  only  7%  to  the  preferred. 

Where  a  corporation  has  both  preferred  and  common  stock, 
the  common  is  much  more  speculative.  It  is  not  to  be  understood 
in  the  case  of  the  7%  preferred,  that  7%  is  guaranteed  but  rather 

173 


§258  CONTRACTS 

that  all  profits  up  to  that  amount  will  be  assigned  to  it  as  earned. 
Whether  there  shall  be  any  preferred  stock  or  not,  and  how  much, 
must  be  determined  in  advance  of  the  sale  of  any  stock  of  either 
kind.  Then  those  who  choose  to  buy  the  common,  purchase  with 
full  knowledge  that  its  share  in  the  earnings  will  be  deferred. 

Full-Paid  Stock  is  stock  the  par  value  of  which  has  been  paid 
for  either  in  cash  or  property.  Its  owner  is  not  subject  to  any 
further  liabilities  either  to  the  corporation  or  the  creditors  (ex- 
cept as  noted  in  §  260  [  b  ]) . 

Many  of  the  States  provide  by  statute  that  no  corporation  shall  issue 
stock  except  for  money  paid,  labor  done,  or  property  actually  received,  and 
declare  all  fictitious  increase  of  stock  to  be  void.  Under  such  circumstances 
an  original  issue  of  stock  as  fully  paid  at  less  than  par  will  be  void. 

Many  cases  will  be  found  bearing  upon  the  validity  of  so- 
called  "  bonus  "  or  "  promotion  "  stock.  In  regard  to  its  validity 
arid  the  stockholder's  liability  the  courts  differ. 

The  Court  of  Massachusetts  (followed  by  New  York)  says,  "When  stock 
is  issued,  it  represents  the  proportionate  interest  of  the  shareholders  in  the 
corporate  property, — subordinated  to  the  claims  of  the  creditors.  The 
liability  of  a  shareholder  to  pay  for  his  stock  depends  upon  his  contract, 
express  or  implied,  or  upon  some  statute.  In  the  absence  of  these  grounds 
of  liability,  we  do  not  perceive  how  a  person  to  whom  shares  have  been  issued 
as  a  gratuity  has  by  accepting  them  committed  any  wrong  upon  the  creditors 
or  made  himself  liable  to  pay  the  nominal  face  value  of  the  shares,  as  he  would 
be  had  he  made  a  contract  of  subscription."  (142  Mass.  349.) 

Meaning  of  Non-Assessable  Stock.  —  It  is  held  to  be  unquestionably 
within  the  powers  of  a  corporation  to  agree  with  stockholders  that  stock 
shall  be  issued  to  them  at  less  than  par,  and  when  so  issued  they  shall  not  be 
subject  to  any  further  assessments  on  the  part  of  the  corporation.  But  this 
is  held  not  to  have  the  effect  of  preventing  subsequent  creditors  of  the  cor- 
poration enforcing  the  payment  of  balances  due  them  in  case  of  its  insolvency. 

Extraneous  to  the  matter  of  issuing  non-assessable  stock,  it 
is  held  that  the  right  to  levy  assessments  upon  stockholders  does 
not  exist  after  payment  by  such  stockholders  for  their  stock  in 
full,  unless  the  power  to  do  so  is  conferred  either  by  statute,  by 
the  articles  of  association,  or  by  the  unanimous  consent  of  all  the 
stockholders. 

258.  STOCK  WATERING.  —  If  an  increase  in  the  capital 
stock  is  made  when  in  fact  no  additional  value  has  been  paid  in, 
either  in  cash,  or  in  money's  worth,  this  is  called  "  stock-water- 
ing." Shares  are  issued  as  fully  paid  up,  which  is  not  the  case, 
and  the  difference  between  the  par  value  and  what  is  actually  paid 
in  is  "  water."  Its  effect  is  to  decrease  the  value  of  the  stock 
already  outstanding  because  each  share  then  represents  a  smaller 
claim  upon  the  company's  assets,  and  requires  the  gross  dividend 

174 


CONTRACTS    OF   ASSOCIATION  ,        §261 

to  be  cut  into  smaller  slices.  In  general,  the  power  to  increase 
capital  stock  exists  only  when  conferred  by  the  express  terms  of 
the  incorporating  act  under  which  the  corporation  is  organized, 
in  the  absence  of  it  the  issue  is  void. 

Stock-watering  is  perhaps  never  morally  legitimate  but  it  may  be  legalized* 
as  has  just  been  shown.  Thus  the  issuance  of  watered  stock  is  a  favorite 
device  of  promoters  of  companies,  organizers,  and  manipulators.  By  it  they 
strive  to  carry  out  their  plans  of  realizing  enormous  gains  from  small  invest- 
ments, or  to  conceal  large  and  unreasonable  profits.  For  it  is  evident  that 
if  huge  profits  are  made  upon  1,000  shares,  and  that  amount  is  then  watered 
by  increasing  the  shares  to  5,000,  the  extra  4,000  may  be  voted  to  the  original 
holders  for  nothing,  whereupon  the  seeming  return  upon  the  number  of  shares 
outstanding  has  become  very  moderate. 

259.  INCIDENTS    of   OWNERSHIP.  —  Stockholders    have 
the  right  to  meet  and  elect  directors;  to  prescribe  by-laws;  to 
inspect  the  corporate  books;  and  to  receive  such  dividends  as 
shall  be  lawfully  and  fully  declared  by  the  directors.     But  there 
can  be  no  suit  for  dividends  already  earned  until  the  directors, 
acting  with  sound  business  discretion,  have  declared  the  same. 
The  ownership  of  shares  entitles  the  owners  to  participate  in  the 
management  of  the  business,  to  share  in  the  profits,  and  in  the 
surplus  after  the  payment  of  corporate  debts. 

260.  Liability  of  Stockholders.  —  By  the  common  law  stock- 
holders were  liable  to  the  full  extent  of  the  par  value  of  the 
capital  stock  subscribed  for  by  them,  and  to  this  fund  and  to  the 
profits  and  surplus  on  hand  the  creditors  were  obliged  to  look. 
The  stockholders7  liability  for  the  corporate  debts  may  be  dis- 
cussed under  two  heads : 

(a)  Unpaid  Stock  Subscription.  "The  capital  stock  of  an  incorporated 
company  is  a  fund  set  apart  for  the  payment  of  its  debts.  It  is  publicly 
pledged  for  the  security  of  those  who  deal  with  the  corporation.  Unpaid 
stock  is  as  much  a  part  of  this  pledge,  and  of  the  assets  of  the  company,  as  the 
cash  which  has  been  paid  in.  The  stockholders  thus  become  liable  for  the 
debts  of  the  corporation  to  the  extent  of  the  unpaid  balance  on  their  stock. 
Where  there  is  a  statutory  liability,  this  is  intended  merely  as  a  secondary 
security  for  the  creditors  in  case  the  assets  of  the  corporation  are  insufficient 
to  meet  its  debts. "  (91  U.  S.  60.) 

(6)  Special  Statutory  Liability.  Personal  responsibility  of  stockholders 
is  inconsistent  with  the  conception  of  corporate  liability  at  common  law,  and 
if  it  exists  at  all,  must  rest  upon  some  positive  statute.  (40  N.  J.  L.  52.) 
This  liability  may,  therefore,  take  a  variety  of  forms.  The  double  liability 
imposed  upon  stockholders  in  National  Banks,  is  a  familiar  example.  In  a 
few  States  the  incorporators  are  liable  as  partners  if  they  fail  to  legally  organize 
as  a  corporation.  In  another  group  of  States  the  stockholders  are  liable  for 
all  debts  of  the  corporation  in  full;  while  in  another  group,  they  are  individually 
liable  for  any  fraud  or  misconduct  on  their  parts,  etc.,  etc. 

261.  The  directors  will  be  liable  to  creditors  when  their  wrong- 
ful acts  have  diminished  the  fund  to  which  the  creditors  look,  as 

175 


§262  CONTRACTS 

when  they  have  unlawfully  declared  an  unearned  dividend,  the 
effect  of  which  was  to  cause  the  insolvency  of  the  Company ;  or  for 
debts  contracted  before  the  statutory  requirements  as  to  sub- 
scription, publication,  etc.,  have  been  complied  with.  Other 
acts  by  which  they  will  incur  liability  in  various  jurisdictions  are: 
Violation  of  express  statutes;  making  loans  to  directors;  loss  of 
funds  through  negligence;  embezzlement  of  officers;  permitting 
an  illegal  issue  of  stocks  and  bonds,  etc. 

262.  RIGHT    to    TRANSFER    STOCK.  —  A    leading    dis- 
tinction between  a  corporation  and  a  partnership  lies  in  the  degree 
of  transferability  of  their  shares.     In  a  corporation,  except  in 
so  far  as  it  may  be  restricted  by  charter,  or  by  an  authorized  by- 
law (called  the  "close  corporation  by-law"),  shareholders  have 
an  absolute  right  to  transfer  their  shares  to  any  one  who  is  capable 
in  law  of  taking  and  holding  them.     This  they  may  do  without 
consulting  the  wishes  of  any  other  shareholder. 

When  the  transfer  is  made  in  good  faith,  the  transferee  takes 
the  place  of  the  first  holder,  assumes  all  his  rights,  and  is  subject 
to  all  his  liabilities,  also.  The  usual  mode  of  transfer  is  by  a 
written  assignment  with  a  power  of  attorney  to  transfer  the  stock 
on  the  books  of  the  Company.  In  accordance  with  this,  the  old 
certificate  is  cancelled,  and  a  new  one  issued  to  the  new  owner. 

Corporations  Holding  Stock  in  Other  Companies.  —  The  pre- 
vailing rule  in  this  country  is  that  unless  power  is  expressly  given 
by  statute,  or  by  reserving  such  right  in  the  charter,  corporations 
have  no  implied  power  to  subscribe  for,  purchase,  or  hold  stock 
in  other  corporations.  But  if  there  is  no  statutory  prohibition 
in  the  matter,  and  a  charter  is  granted  which  contains  this  privi- 
lege, then  of  course  it  can  be  safely  exercised.  The  organization 
of  subsidiary  companies  is  similarly  dealt  with;  and  so  is  con- 
solidation with  other  companies. 

MUNICIPAL    CORPORATIONS 

263.  Many  of  the  principles  discussed  under  the  general  head 
of  private  corporations  also  apply  to  public  and  municipal  cor- 
porations.    The    term    "  public    corporations "    includes    cities, 
villages,  townships,  and  counties  though  the  two  last  are  rarely 
if  ever  actually  incorporated.     They  are  each  organized  to  per- 
form functions  of  self-government,   are   created  by  the  State, 
and  in  general,  they  possess  only  such  powers  as  it  confers  upon 

176 


CONTRACTS    OF    ASSOCIATION  §264 

them.  A  public  corporation,  like  a  private  one,  is  a  distinct 
entity,  and  represents  the  unification  of  a  large  body  of  inhabitants 
into  one  distinct  legal  personality.  A  private  corporation  rests 
upon  an  express  or  implied  contract  between  the  corporators  and 
the  State,  and  a  contract  between  the  individuals  composing  it. 
There  is  no  such  contractual  relation  in  the  case  of  a  public  cor- 
poration, since  its  chief  purpose  is  to  further  the  ends  of  local 
self-government.  The  central  government  (the  Legislature)  has 
practically  unlimited  powers  over  a  municipal  corporation  and 
may  modify,  diminish,  or  enlarge  its  powers.  In  the  case  of  the 
private  corporation,  its  charter  rights  are  extensively  protected. 

264.  CHARTER  POWERS.  —  The  distinctive  charter  powers 
which  may  be  conferred  upon  and  exercised  by  a  municipal  cor- 
poration are  very  numerous,  —  with  not  a  few  of  them  the  engineer 
may  be  directly  concerned.  Thus  in  the  control  of  public  parks 
and  squares,  a  city  may,  under  legislative  authority,  acquire  such 
lands  by  eminent  domain.  (See  §  235.)  Though  as  a  rule,  a 
city  has  no  power  to  act  outside  its  territorial  limits,  yet  if  it 
owns  and  controls  such  a  park,  the  city's  powers  in  regard  to  it  are 
the  same  as  if  it  were  owned  by  a  private  corporation. 

With  reference  to  wharves  and  docks,  power  is  usually  con- 
ferred to  control  and  even  to  erect  such  structures.  Another 
similar  special  power  often  given  the  city  is  the  right  to  control 
ferry  franchises,  to  license  them,  or  operate  them  in  its  own  behalf. 

A  considerable  body  of  powers  deals  with  the  public  health  and 
safety.  A  municipal  board  of  health  usually  enforces  sanitary 
regulations  made  by  the  State,  and  may  promulgate  additional 
local  regulations. 

The  establishment  and  regulation  of  fire  departments  falls  within  the  above 
classification  of  powers.  Thus  it  is  held  that  a  city  has  authority  to  establish 
fire  limits  within  which  only  fire-resisting  materials  shall  be  used  for  structures; 
and  that  it  may  destroy  buildings  to  prevent  the  spread  of  fire  (for  which  it 
is  generally  held  that  the  city  incurs  no  liability  to  the  owner,  though  some 
States  have  provided  otherwise). 

In  this  connection  it  is  held  that  a  city  is  not  liable  for  the  negligent  acts  of 
its  servants  in  the  fire  departments,  or  other  agents  or  officials,  nor  for  the 
acts  of  those  persons  charged  with  the  enforcement  of  its  sanitary  and  health 
regulations.  In  these  cases  the  city  is  performing  services  of  a  purely  public 
character.  There  is  no  element  of  guaranteeing  the  safety  or  satisfaction  of 
the  individual  served  gratuitously,  as  there  would  be,  if  the  services  were 
performed  under  contract  by  a  private  corporation  for  hire. 

To  explain  why  the  rule  against  municipal  corporations  seems 
so  lenient,  the  great  Chief  Justice  Marshall  said :  "  Money  cor- 
porations are  those  which  carry  on  business  for  themselves,  and 

177 


§265  CONTRACTS 

they  are  liable  for  their  torts,  while  legislative  [municipal]  cor- 
porations established  as  part  of  the  government  are  not." 

The  water  supply  of  a  city  furnishes  a  field  of  great  engineering 
and  legal  importance.  It  is  held  that  to  supply  itself  with  water 
a  city  cannot  divert  the  water,  from  a  stream  if  to  do  so  would 
injure  the  riparian  owners.  (65  Pa.  444.)  But  under  a  power 
of  eminent  domain  a  city  may  be  so  authorized  to  divert  water 
for  public  purposes.  (4  Gray  500.) 

As  to  the  quality  of  the  water  supply,  it  has  been  held  in  England  that  a 
city  is  not  liable  for  disease  contracted  by  a  citizen  from  the  city's  impure 
water  supply;  but  that  a  private  water  company  would  be  liable  in  such  a 
case,  since  they  operate  the  water-supply  system  for  the  purpose  of  private 
gain. 

With  reference  to  city-owned  gas  works,  however,  a  different 
position  is  held,  to  the  effect  that  for  negligence  in  supplying  this 
commodity,  the  city  would  be  liable  to  the  same  extent  as  a  private 
company. 

A  highly  important  restriction,  which  is  quite  generally  im- 
posed upon  municipalities,  is  the  limitation  upon  its  power  to 
borrow  money.  Jurists  disagree  as  to  whether  the  power  to  borrow 
at  all  is  an  implied  one,  or  must  necessarily  be  expressed  or  sanc- 
tioned by  legislative  authority;  but  in  general,  there  is  an  ex- 
press limitation  on  the  amount  which  can  be  borrowed  for  any 
purpose  whatever.  This  amount  ranges  from  5  to  10%  of  the 
assessed  valuation  of  the  property  within  the  city  limits. 

There  is  an  imposing  array  of  cases  to  the  effect  that  a  person,  —  an 
engineering  contractor,  for  example,  —  about  to  enter  into  a  contract  with 
a  municipality,  must  ascertain  at  his  peril  the  legal  limits  of  the  municipal 
indebtedness.  He  must  determine  for  himself  whether  the  proposed  contract 
will  cause  the  limit  to  be  exceeded,  for  if  it  does  he  cannot  enforce  payment 
of  the  debt  which  may  be  due  him.  (See  §  23.) 

There  is  an  important  exception  to  this  rule,  however,  where  the  debt  is 
incurred  through  a  breach  of  obligations  imposed  upon  the  city  by  law.  Thus, 
if  a  city  fails  to  keep  its  streets  or  sidewalks  in  repair,  —  or  do  any  other 
'acts  wherein  it  may  be  held  accountable  for  its  negligence,  —  it  cannot  escape 
liability  on  the  plea  that  damages  cannot  be  collected  because  the  city  is 
already  up  to  or  over  its  debt  limit.  (99  111.  329.) 

265.  LIABILITY  of  MUNICIPALITY  in  TORT.  —  A  city 
is  not  liable  for  legislative  or  discretionary  action  on  the  part  of  its 
officers  resulting  in  private  damage;  nor  for  its  neglect  to  abate 
nuisances ;  nor  for  the  destruction  of  private  property  within  its 
limits  by  mob  violence,  even  though  statutes  make  it  the  city's 
duty  to  police  its  streets. 

Streets.  —  At  common  law,  the  city  was  not  liable  for  damages 

178 


CONTRACTS    OF   ASSOCIATION  §265 

due  to  changing  the  grade  of  its  streets,  though  this  is  now  gen 
erally  changed  by  statutes  and  decisions.  But  if  the  change  of 
grade  is  made  for  other  than  the  common  street  purposes,  —  as  by 
a  railroad  company  improving  a  grade-crossing,  for  example,  — 
then,  at  common  law,  abutting  owners  have  a  right  to  damages 
for  such  change. 

It  is  held  that  the  city  owes  no  duty  of  lateral  support  (see 
§  210)  to  owners  abutting  on  a  street  whose  grade  it  lawfully 
changes,  for  this  common  law  obligation  between  individuals  is 
not  applicable  to  municipalities. 

In  most  States  municipal  corporations  are  held  liable  for 
injury  to  persons  caused  by  defective  and  unsafe  streets,  sidewalks, 
and  bridges,  within  their  corporate  limits.  The  city  is  not  an 
insurer  of  the  safety  of  persons  using  the  streets,  but  is  bound 
merely  to  keep  them  in  a  condition  reasonably  safe  for  travel  in 
the  ordinary  modes. 

The  city's  agents  must  have  had  notice  of  the  defect,  however, 
and  the  plaintiff  must  not  have  been  guilty  of  contributory  negli- 
gence. In  one  case,  the  city  negligently  allowed  ice  caused  by  a 
broken  water  main  to  remain  after  it  had  had  a  reasonable  oppor- 
tunity to  remove  the  same,  and  it  was  held  liable  for  injuries 
resulting  therefrom.  (118  S.  W.  Rep.  994.) 

Sewers.  —  With  reference  to  sewers,  Dillon,  an  eminent 
authority,  says : 

First j  a  municipal  corporation  is  not  liable  on  account  of  the 
insufficiency  of  the  system  adopted,  except  where  it  has  the  direct 
effect  of  precipitating  sewage  upon  private  property; 

Second,  the  city  is  liable  for  injuries  resulting  to  private  prop- 
erty from  the  negligent  execution  or  construction  of  the  plan  of 
sewerage  adopted ;  or  for  the  negligent  failure  to  keep  the  same  in 
repair,  and  free  from  obstructions.  When  the  sewers  of  a  city 
have  been  built  at  public  expense  and  the  property  in  them  is 
vested  in  the  city,  neglect  in  their  construction  or  repair  whereby 
private  property  is  injured  gives  a  right  of  action  against  the 
city.  (110  Mass.  216.) 

The  maintenance  of  a  free  public  sewer  by  a  city  is  an  exercise 
of  its  police  powers,  for  the  public  benefit.  (See  §  264.)  Hence 
a  city  was  not  liable  for  the  death  of  a  citizen  from  illness  caused 
by  pollution  due  to  such  sewer.  (Asheville,  S.  C.  See  64  S.  E. 
Reporter  88.) 

179 


§266  CONTRACTS 

PARTNERSHIP 

266.  Partnerships  were  known  before  the  legal  relationship 
called  a  corporation  was  invented.     When  an  undertaking  too 
large  for  the  personal  resources  of  the  projector  came  up,  hg 
invited  one  or  more  persons  in  whom  he  reposed  sufficient  con- 
fidence to  pool  their  assets  with  him.     Upon  the  strength  of  their 
combined  credits  and  resources,  whether  of  property,  money, 
personal  skill,  or  knowledge,  the  scheme  was  undertaken.     The 
resulting  status  of  the  individuals  was  in  law  known  as  a  partner- 
ship.    Our  present  purpose  is  to  present  some  of  the  most  prom- 
inent characteristics  of  this  legal  status,  or  relationship.     The 
discussion  will  fall  under  three  general  heads,  viz. :   general  and 
limited  partnerships,  and  joint-stock  companies. 

267.  DEFINITION.  —  A  partnership  is  defined  as  the  rela- 
tion existing  between  persons  who  have  agreed  to  combine  their 
property,  labor,  or  skill,  or  some  or  any  of  them,  in  lawful  com 
merce  or  business,  sharing  the  profits,  and  generally  the  losses, 
between  them.     It  is  purely  a  contract  relation,  resting  upon  an 
agreement  either  express  or  implied,  and  the  ordinary  rule  of  com- 
petency to  contract  applies.     (See  §  23.) 

Any  person  who  is  capable  of  contracting  may  be  a  partner.  Corporations 
form  a  notable  exception,  and  for  cogent  reasons  of  justice  and  equity,  no  cor- 
poration can  enter  into  a  contract  of  partnership.  A  partner  is  general  agent 
for  his  firm,  while  the  agent  of  a  corporation  is  a  duly  elected  officer,  possessing 
the  confidence  of  the  stockholders,  and  by  them  authorized  to  do  specific  acts. 
If  the  corporation  had  a  partner,  under  the  rules  of  partner's  agency  (see  §  277) 
he  would  have  power  to  bind  the  corporation  and  control  its  affairs  without 
the  assent  of  the  corporation  stockholders,  and  results  gravely  prejudicial  to 
them  might  ensue. 

268.  PARTNERSHIP  ARTICLES.  —  When  forming  a  part- 
nership, if  the  parties  choose  to  regulate  their  rights,  powers,  and 
duties  among  themselves  by  a  formal  written  instrument,  it  is 
termed  the  "  partnership  articles."     Like  every  other  contract, 
it  must  be  construed  (see    §  §  80-1)   or  interpreted,   and  much 
matter  not  expressed  in  the  articles  will  be  implied  and  enforced 
by  common  law  rules. 

The  articles  must  be  construed  with  reference  to  the  purposes  of  the 
partnership;  to  defeat  fraud;  and  one  partner's  taking  unfair  advantage  over 
another.  Should  the  firm  continue  beyond  the  term  first  agreed  upon,  the 
same  articles  will  govern,  unless  new  ones  are  provided.  Of  course  the  termy 
may  be  modified  by  mutual  agreement,  like  any  other  contract.  * 

Some  of  the  topics  usually  treated  in  the  articles  are:     The 
general  nature  of  the  business ;  time  of  commencing,  and  duration 
*See  Appendix  Note  13.     "Construing  Partnership  Articles." 

180 


CONTRACTS    OF    ASSOCIATION  §271 

of  the  relation ;  the  name,  or  style  of  the  firm ;  the  capital  or  ad- 
vances contributed  or  made  by  each  partner,  and  his  rights, 
duties,  and  share  of  the  profits ;  provision  for  annual  accounts,  and 
for  general  accounting  upon  dissolution ;  restraint  upon  partners 
from  transacting  similar  business  to  compete  with  the  firm ;  refer- 
ence to  retirement  of  a  partner,  or  sale  of  his  interest,  and  the 
status  of  his  representative  in  case  of  death  during  the  term ;  and 
so  on,  according  to  the  desire  and  intention  of  the  parties. 

269.  PARTNERSHIP  by  IMPLICATION.  —  When  there 
are  clear  and  explicit  "  articles  "  it  is  easy  to  determine  whether 
a  bona  fide  partnership  was  created.  But  in  the  absence  of  such 
articles,  the  detection  of  a  binding  implied  contract  (see  §  68)  of 
association  is  frequently  very  difficult.  By  the  force  of  circum- 
stances, of  which  innumerable  combinations  might  arise,  it  could 
be  found  as  a  matter  of  law,  that  a  partnership  did  exist  even 
though  the  parties  were  entirely  unconscious  of  the  fact,  and 
did  not  intend  that  relationship;  and  this  too,  even  though  the 
critical  test  lies  in  the  intention  of  the  parties. 

"Holding  Out."  —  It  is  not  likely  that  any  prudent  business  man  will 
leave  the  determination  of  his  relationship  to  a  fellow-trader  to  mere  inference, 
when  the  existence  of  what  we  may  term  a  primary  partnership  is  in  question. 
But  where  there  is  a  "  holding  out,"  another  partnership  relation  springs  up 
with  regard  to  one  or  more  outsiders  creating  by  implication  a  secondary  part- 
nership, though  perhaps  the  original  one  was  formed  by  express  agreement. 

This  may  happen  where  a  person  by  declaration  or  by  acts,  represents 
himself  as  a  partner,  or  suffers  himself  to  be  so  represented.  He  then  becomes 
liable  to  third  persons  just  as  if  he  were  in  fact  a  partner,  though  there  are  no 
rights  whatever  as  between  himself  and  the  original  partnership.  A  com- 
mon instance  is  where  a  retiring  partner  is  liable  on  subsequent  firm  debts 
because  he  neglects  to  give  notice  of  his  withdrawal.  Or  perhaps  he  does  not 
forbid  the  use  of  his  name  by  the  firm,  or  the  retention  of  it  in  the  firm  name. 
It  may  happen  in  other  ways,  also,  and  it  is  always  a  question  of  fact,  whether 
the  holding  out  creates  the  partnership  relation. 

270.  The  spirit  of  the  foregoing  is  also  stated  thus:  "Every  one  who  by 
words,  spoken  or  written  by  himself,  or  by  conduct  represents  himself,  or 
knowingly  suffers  himself  to  be  represented  as  a  partner  in  a  particular  firm,  is 
liable  as  a  partner  to  any  one  who  in  good  faith  gives  credit  to  the  firm  on  the 
strength  of  such  representation."     Such  an  individual  is  said  to  be  "estopped" 
(see  §  249  [4])  to  deny  that  he  is  in  fact  a  member  of  the  firm,  and  the  resulting 
quasi-contractual  (see  §  129)  relation  is  called  a  "partnership  by  estoppel." 

There  is  an  apparent  exception  to  this  if  after  a  partner's  death  the  business 
is  continued  in  the  same  name,  for  such  use  would  not  of  itself  make  the 
deceased  partner's  executors  or  administrators  liable  for  any  partnership 
debt  contracted  after  his  death. 

271.  PARTNERSHIP   TEST. —Even  where   articles   of   a 
more  or  less  definite  and  extended  sort  have  been  prepared,  still 
questions  may  arise  as  to  whether  a  partnership  really  exists.    The 
best  test  is :    If  you  can  find  from  all  the  circumstances  that  the 

181 


§  272  CONTRACTS 

parties  intended  that  they  should  be  mutually  principals  and 
agents;  that  each  should  have  power  to  bind  the  other  as  his 
agent  in  affairs  pertaining  to  the  trade,  —  if  you  can  find  by  Bx- 
press  agreement,  or  by  their  conduct,  that  this  is  what  is  intended, 
then  you  have  a  partnership ;  this  is  their  intention  prima  facie, 
when  they  agree  to  share  profits  and  losses.  This  test  is  applicable 
through  the  most  widely  varying  sets  of  facts.  Since  partnership 
rests  upon  a  contractual  basis  of  agreement  between  private 
parties,  it  will  be  seen  that  here  is  but  another  application  of  that 
leading  doctrine  for  construing  contracts,  viz. :  The  intention  of 
the  parties  shall  prevail.  (See  §  81.) 

All  the  circumstances  of  each  case  must  be  specially  considered.  The 
facts  that  each  person  has  contributed  capital,  skill,  and  labor,  shares  in  the 
management  and  in  the  profits  and  losses  of  the  business,  are  all  strong  evi- 
dence of  intention  to  form  a  partnership,  and  such  parties  may,  by  outsideis, 
be  held  liable  as  partners,  even  though  among  themselves  they  have  expressly 
stipulated  otherwise. 

272.  Partnership  and  Joint  Enterprises  Distinguished.  —  In  a  case  where 
three  Railroad  Companies  and  Steamship  Lines  agreed  to  carry  freight  over  a 
certain  route  and  to  divide  the  returns,  this  was  held  not  to  be  a  partnership, 
but  merely  a  joint  enterprise.     Another  case  shows  that  an  agreement  to  pay 
for  services  or  commissions  out  of  a  share  of  the  profits  did  not  constitute  a 
partnership;  probably  because  it  was  not  so  intended,  and  the  servant  or  em- 
ployee was  to  bear  no  losses,  —  only  to  share  in  contingent  profits. 

In  another  case,  A  and  B  contracted  that  if  B  should  advance  $5,000  to 
carry  on  a  smelting  business,  A  would  pay  him  10%  of  the  profits.  Third 
parties  sued,  claiming  this  was  a  partnership.  The  original  agreement  was 
that  A  should  have  the  use  of  the  money  for  one  year.  The  transaction  was 
held  to  be  merely  a  loan;  A  and  B  were  debtor  and  creditor,  but  not  partners. 

Agency.  —  A  person  sued  as  a  partner  was  employed  to  purchase  and 
forward  produce,  for  which  he  was  to  receive  a  share  in  the  profits.  He  had 
no  interest  in  the  capital  stock  of  the  company,  and  exercised  none  of  the  usual 
powers  of  a  partner.  He  was  held  to  be  merely  an  agent. 

Profits.  —  It  was  formerly  held  that  all  persons  who  shared  in 
the  profits  of  a  business  incurred  the  liabilities  of  partners  therein, 
even  if  no  partnership  was  contemplated  among  the  parties.  It 
is  now  held,  upon  the  best  authority,  that  the  test  is  to  be  found 
in  the  intention  of  the  parties  (see  §  271)  to  enter  into  the  relation- 
ship of  partners.  Although  it  is  usual  for  partners  to  share  losses, 
an  agreement  whereby  one  is  to  bear  them  all  is  not  invalid. 

273.  FIRM  NAME.  —  A  firm  name  is  not  essential  to  the 
existence  of  a  partnership,  but  is  convenient  in  the  transaction  of 
business,  and  when  one  has  been  adopted  all  the  firm  business 
should  be  conducted  under  it.     Any  name  may  be  adopted  em- 
bracing the  names  of  some  one,  part,  or  all  of  the  partners ;  or  it 
may  be  purely  fanciful  giving  no  clue  to  the  identity  of   the 
partners,  as  the  Eureka  Contracting  Co.,  Western  Construction 

182 


CONTRACTS    OF   ASSOCIATION  §274 

Co.,  etc.  Names  which  a  firm  can  not  adopt  are  those  which 
purport  distinctly  to  be  the  name  of  a  corporation,  or  one  which 
has  been,  and  is,  used  by  another  firm  or  company,  and  which  has 
become  associated  with  and  appropriated  to  their  business.  In 
such  a  case  it  has  become  a  part  of  their  "  good  will,"  and  is  an 
asset  with  a  property  value.  If  this  property  right  were  not  recog- 
nized, practically  all  money  spent  in  advertising  would  be  wasted. 

Notice  and  Firm  Name.  —  B  and  K  were  partners  under  the 
name  of  Spring  Brook  Mill  Co.  This  firm  was  dissolved  by  both 
members  selling  out,  but  the  incoming  purchasers  carried  on  the 
business  under  the  same  name.  The  plaintiff  had  contracted  with 
the  new  firm  without  knowledge  of  the  dissolution.  The  Massa- 
chusetts court  held  that  if  plaintiff  had  been  dealing  with  the 
former  partnership,  even  though  in  ignorance  of  the  identity  of 
its  members,  yet  they  had  no  right  to  step  out  without  giving 
notice,  and  thus  shift  the  responsibility  of  future  contracts  upon 
persons  who  might  not  be  responsible.  Hence  the  original  firm- 
members  were  held  liable. 

The  firm  name  becomes  of  importance  also  with  reference 
to  the  holding  of  real  estate,  for  while  a  partnership  may  own 
and  even  deal  in  real  estate  it  cannot  hold  legal  title  in  the  firm 
name,  but  must  hold  jointly  in  the  names  of  the  partners  who  com- 
pose the  firm.  Therefore  when  they  convey  firm  realty,  all  the 
partners  must  sign  the  deed  individually.  This  is  another  illus- 
tration of  the  difference  between  a  partnership  and  a  corporation, 
and  of  the  absence  of  the  "  distinct  entity  "  theory  in  partnership. 
Personal  property,  however,  may  be  bought  and  sold  in  the  firm 
name.  This  is  a  practical  rule  of  great  usefulness. 

274.  DISSOLUTION.  —  Some  partnerships  are  formed  to 
last  for  a  definite  period,  and  others  exist  "  at  will  "  of  the  persons 
composing  them.  They  can  be  dissolved  at  any  time  by  notice 
from  one  partner ;  by  his  selling  out  his  interest,  and  giving  notice 
thereof;  or  by  a  partner's  bankruptcy.  Death  of  a  partner 
will  ipso  facto  terminate  a  partnership,  and  the  bankruptcy  of  the 
firm  has  the  same  effect.  But  if  the  parties  choose  to  make  a 
positive  arrangement  covering  such  matters  in  their  articles  of 
partnership,  it  can  then  be  provided  that  the  death  of  a  partner, 
sale  of  his  interest  in  the  firm,  or  his  bankruptcy,  shall  not  dis- 
solve the  partnership.  It  may  be  truer  to  say  that  the  firm  is  dis- 
solved by  such  act,  notwithstanding  their  agreement,  and  that  in 

183 


§275  CONTRACTS 

reality  a  new  contract  relation,  conditionally  provided  for  in  the 
first  agreement,  automatically  enables  a  new  partnership  to  spring 
into  existence. 

There  are  other  causes  for  which  a  court  of  equity  will  decree  a 
dissolution,  namely:  Insanity,  or  other  incompetency  of  a  part- 
ner; gross  misconduct  of  the  business  by  one  partner,  when  the 
aggrieved  party  can  get  a  dissolution,  as  where  the  former  has 
sought  to  withhold  from  his  co-partner  the  profits  of  some  secret 
transaction;  or  where  one  co-partner  has  sought  to  exclude  or 
expel  another,  or  to  drive  him  to  a  dissolution ;  or  where  the  busi- 
ness has  been  a  failure,  and  there  is  an  impossibility  of  making  a 
profit. 

275.  But  even  upon  dissolution  the  rights  and  duties  of  part- 
ners do  not  immediately  come  to  an  end,  since  it  is  the  duty  of 
some  one  or  all  of  them  to  do  such  acts  as  are  necessary  to  wind 
up  the  business.     For  the  purpose  of  properly  finishing  and  carry- 
ing out  business  remaining  unfinished  at  the  moment  of  dis- 
solution, any  partner  may  make  new  or  supplementary  contracts 
which  will  bind  the  firm.     But  the  subject  matter  of  the  last  con- 
tract must  not   be   entirely  new   and   distinct  from  the  prior 
business. 

A  firm  manufacturing  clothing  was  dissolved  by  the  death  of  a  partner, 
yet  the  surviving  partner  entered  upon  new  contracts  for  the  purpose  of  com- 
pleting a  large  quantity  of  unfinished  clothing  on  hand  at  the  partner's  death. 
This  was  held  to  be  necessary  and  proper  in  order  to  realize  a  fair  value  upon 
the  goods,  and  therefore  the  estate  of  the  deceased  partner  was  bound  by  these 
contracts,  made  after  dissolution. 

Upon  dissolution,  the  partners  or  survivors  must  give  notice 
of  the  dissolution,  must  pay  all  the  firm  debts,  applying  the  firm 
property  for  this  purpose  and  make  up  the  deficit  personally,  if 
there  is  one.  (See  §  279.)  If  there  is  a  surplus,  each  has  a  right 
to  his  share  in  it  according  to  his  share  in  the  firm.* 

276.  KINDS  of  PARTNERS.  — -  There  are  various  types  of 
partners  known  as  general,  special,  ostensible,  secret,  silent,  and 
dormant  partners.     To  define:  A  general  partner  is  one  who  is 
liable  for  all  the  firm  debts,  while  a  special  partner  is  one  whose 
liability  for  the  firm  debts  is  limited  to  a  specified  amount.     An 
ostensible  partner  is  one  whose  connection  with  the  firm  is  openly 
avowed,  but  a  secret  partner  is  one  whose  connection  is  concealed, 
or  at  least,  not  announced  nor  made  known  to  the  public.     A 

*See  Appendix  Note  14,  "Final  Accounting." 

184 


CONTRACTS    OF   ASSOCIATION  §278 

silent  partner  is  one  who  shares  in  the  profits,  is  an  ostensible 
partner,  yet  has  no  voice  in  the  management.  A  dormant  partner 
combines  the  characteristics  of  both  a  silent  and  secret  partner, 
and  though  his  character  as  partner  is  concealed,  he  has  no  voice 
in  the  management.  When  discovered,  he  is  liable  as  a  general 
partner,  in  so  far  as  those  who  know  him  to  be  a  partner  are 
concerned.  The  discussion  which  follows  pertains  almost  wholly 
to  the  rights  and  obligations  of  a  general  partner. 

277.  PARTNER'S  POWERS.  —  Perhaps  the  central  feature 
in  this  whole  discussion  qf  partnership  is  the  power  of  the  indi- 
vidual partner,  and  his  attendant  liability.     Every  member  of  an 
ordinary  partnership   is   by  implication  its  general  agent  fully 
accredited  to  transact  the  firm  business  in  the  ordinary  way. 
By  the  principles  of  agency,  this  means  that  the  other  parties 
composing  the  firm  are  individually  bound  by  the  acts  of  said 
partner  when  he  is  acting  for  the  firm  within  the  scope  of  the 
authority  conferred  by  the  nature  of  the  business  carried  on. 

This  implied  authority  may  be  restricted  by  agreement  be- 
tween the  partners,  but  such  restrictions  upon  his  authority  do 
not  affect  the  right  of  third  persons  to  deal  with  such  partner  on 
the  firm  business,  unless  such  persons  have  notice  of  the  restric- 
tions. A  difficulty  is  presented  here,  since  no  rule  can  be  laid  down 
to  determine  the  question  as  to  whether  a  certain  act  is  necessary 
in  the  transaction  of  a  business,  and  so  within  a  partner's  implied 
authority.  Hence  each  case  must  be  determined  by  the  nature 
of  the  business  and  the  customs  of  persons  engaged  in  it. 

278.  There   are,   however,    certain   things   which   it   is   well 
settled  a  partner  may,  and  others  he  may  not  do.     A  partner 
has  power  to  bind  his  firm  by  appointing  agents,  selling  chattels, 
receiving  bills  of  exchange;  and  in  trading  partnerships,  he  has 
the  power  to  borrow  money  necessary  to  carry  on  the  firm  busi- 
ness, sign  notes,  endorse  negotiable  paper  in  the  firm  name,  and 
to  mortgage  and  pledge  personal  property.     But  he  cannot  bind 
the  firm  by  making  a  firm  assignment  for  the  benefit  of  creditors ; 
nor  make  a  guaranty  in  the  firm  name;  nor  make  a  mortgage, 
deed,  or  lease  of  realty. 

In  accordance  with  the  foregoing,  it  is  plain  that  a  partner  can 
bind  the  firm  upon  simple  contracts  which  are  within  the  scope  of 
the  firm  business,  both  as  to  buying  and  selling,  though  he  can- 
not sell  all  the  firm  property  so  as  to  terminate  the  partnership. 

185 


§279  CONTRACTS 

The  rest  of  the  firm  can  only  escape  liability  upon  such  contracts 
of  buying  and  selling  by  giving  previous  notice  of  their  dissent  to 
the  party  with  whom  the  contract  is  about  to  be  made.  This 
accords  with  the  principle  of  agency  that  a  principal  may  revoke 
his  agent's  authority  before  the  intended  act  is  done.  Otherwise, 
the  remaining  partners  will  be  bound. 

Where  a  partner  pledges  the  firm  credit  for  a  purpose  apparently  not  con- 
nected with  the  firm's  ordinary  business,  the  firm  is  not  bound  unless  he  is 
in  fact  authorized  by  the  other  partners;  but  this  does  not  affect  any  personal 
liability  incurred  by  him  individually. 

Persons  who  have  notice  or  reason  to  believe  that  the  thing  done  in  the 
firm  name  is  for  a  private  purpose,  or  on  the  separate  account  of  the  person 
doing  it,  cannot  say  that  they  were  misled  by  his  apparent  general  authority. 
The  simple  reason  is  that  his  authority  exists  for  the  benefit  and  general  pur- 
poses of  the  firm  and  not  for  the  benefit  of  its  individual  members.  The 
commonest  case  of  this,  perhaps,  is  where  one  partner  gives  notes  of  the  firm 
or  other  firm  securities  to  raise  money  for  private  purposes,  or  to  pay  his 
private  debts.  If  the  person  so  lending  has  notice  of  the  want  of  authority, 
he  cannot  sue  the  firm  for  it. 

279.  PARTNER'S    LIABILITY.  —  Co-extensive    with    the 
partner's  powers,  and  possibly  of  even  greater  importance,  is  the 
partner's  liability.     This  is  said  to  be  "  joint/'  unless  the  articles 
expressly  impose  a  "  several  "  liability,  or  unless  the  partners  are 
made  jointly  and  severally  liable  by  statute,  as  is  quite  generally 
the  case.      "  Joint"  and  "  joint  and  several  "  are  technical  terms 
of  weighty  import. 

To  illustrate:  Suppose  a  firm  of  three  persons  incurs  a  firm  debt  of  $3,000. 
The  creditor  can  look  for  satisfaction  not  alone  to  the  firm  property,  but  also 
to  the  individual  property  of  the  partners.  He  may  proceed  to  sue  the  part- 
ners individually  without  first  exhausting  the  firm  assets,  should  he  elect  to  do 
so.  Now  if  the  liability  of  the  partners  was  "joint"  only,  then  each  would  be 
liable  to  pay  $1,000,  and  no  more.  Hence  if  two  had  property,  and  the  third 
had  none,  the  firm  being  insolvent,  the  creditor  could  get  only  $2,000.  But 
if  the  liability  is  "several"  as  well  as  joint,  the  creditor  can  at  his  pleasure 
select  any  one  or  more  of  the  partners,  and  hold  him  or  them  for  the  whole  of 
the  firm  debt.  Suppose  one  is  so  chosen  and  that  the  other  two  possess  no 
property.  Of  course  a  judgment  against  the  irresponsible  partners,  if  ob- 
tained, would  be  valueless. 

A  little  consideration  will  show  that  this  joint  and  several 
liability  is  almost  the  central  fact  in  the  partnership  status.  It 
also  serves  to  show  clearly  that  the  existence  or  non-existence  of 
a  partnership  may  in  a  given  state  of  facts  spell  the  financial  ruin 
of  an  individual. 

280.  Here  also,  it  appears  clearly,  is  one  of  the  foremost  dis- 
tinctions between  a  partnership  and  a  corporation,  since  the  liability 
of  the  corporation  stockholder  is  generally  limited  to  the  price  of 
his  shares.     (See   §  260.)     Therefore  he  may  lose  that  amount, 

186 


CONTRACTS    OF    ASSOCIATION  §281 

and  frequently  does  so  because  of  a  lack  of  adequate  capital  to 
prosecute  the  enterprise ;  for  want  of  sound  business  management 
of  the  corporate  affairs,  etc.,  etc.  But  when  his  money  is  gone, 
that  is  the  end  of  his  liability. 

On  the  other  hand,  the  partner  who  is  financially  responsible, 
but  has  dishonest  or  incompetent  associates,  is  by  no  means  so 
well  off,  since  each  partner  in  a  general  partnership  is  individually 
liable  for  the  whole  amount  of  the  firm  debts,  whether  he  is  able 
to  pay  them  or  not.  (§  279.)  This  liability  begins  when  the 
partnership  is  actually  formed,  even  though  the  articles  are  not 
executed  until  later. 

Torts.  — 'The  firm's  liability  extends  also  to  torts  (see  §  156) 
committed  by  one  partner  if  the  firm  has  authorized  such  tortious 
act,  or  has  in  any  way  joined  in  its  commission;  or  when  they 
have  adopted  it,  either  expressly,  or  retained  the  benefits  thereof; 
and  also  if  committed  by  a  partner  while  acting  in  the  ordinary 
scope  of  the  partnership  business  and  as  a  part  of  his  employment. 
This  is  but  another  illustration  of  the  principle  of  agency  that  a 
principal  (the  firm)  will  be  liable  for  the  torts  of  his  agent  (the 
partner).  Torts  which  may  be  mentioned  in  this  connection  are 
trespass,  fraud,  and  committing  a  nuisance. 

281.  Termination  of  Liability. — The  liability  of  a  partner 
with  reference  to  future  acts  of  his  co-partners  is  terminated  by 
the  firm's  dissolution  by  operation  of  law,  as  by  the  bankruptcy 
of  a  partner,  or  a  dissolution  by  act  of  the  partners,  when  proper 
notice  thereof  has  been  given  to  the  public  and  to  prior  dealers 
with  the  firm.  Then  those  who  deal  subsequently  with  the  firm 
will  have  notice  that  they  cannot  rely  upon  the  financial  responsi- 
bility of  the  retiring  partner. 

The  liability  of  the  partner  for  the  past  acts  and  obligations  of 
the  firm  is  terminated  by  payment  or  settlement  of  them  by  the 
firm ;  or  by  a  partner  for  the  firm ;  or  by  a  release  to  the  firm  or 
to  any  member  thereof;  or  by  a  new  contract  made  to  supersede 
the  old  obligation,  assented  to  by  the  creditor.  It  should  be 
added  that  if  a  firm  passes  through  bankruptcy,  and  is  discharged 
by  the  Federal  Court,  no  actions  can  subsequently  be  maintained 
against  the  partners  for  previous  obligations  of  the  firm,  irre- 
spective of  the  percentage  paid  upon  the  claims  at  liquidation. 

It  should  be  carefully  observed  that  a  partner  is  not  released 
from  prior  obligations  of  the  firm,  merely  by  reason  of  dissolution, 

187 


§  282  CONTRACTS 

•anless  by  the  consent  of  all  the  parties  in  interest ;  or  unless  the 
obligation  is  assumed  by  the  remaining  partners,  or  disposed  of  as 
already  suggested. 

If  a  partner  is  sued  for  a  private  debt  not  connected  with  the  firm  business, 
his  interest  in  the  partnership  may  be  reached  through  an  equitable  action 
amounting  to  an  attachment  and  sale  upon  execution.  Yet  the  purchaser 
who  buys  the  partner's  interest  merely  succeeds  to  the  rights  of  the  partner, 
i.e.  to  a  share  in  the  surplus,  if  there  is  one,  after  the  payment  of  all  firm  debts. 
Hence  the  buyer,  in  such  a  case,  is  likely  to  get  a  doubtful  bargain  unless  he  is 
familiar  with  the  condition  of  that  particular  firm  and  feels  confident  he  will 
recoup  himself  from  the  surplus  ascertained  at  the  accounting. 

282.  PARTNER'S    INTEREST.  —  A   partner's    interest   in 
the  firm  property  simply  entitles  him  to  a  given  proportion  of 
what  remains  of  the  assets  after  all  the  firm  debts  are  paid.     It 
follows,  therefore,  that  no  partner  has  ownership  of  an  undivided 
share  in  the  firm  property.     That  is,  he  could  not  demand,  in  a 
firm  of  three,  that  one-third  of  all  the  firm  property  should  be 
separated  and  set  aside  as  his  private  or  individual  property. 
However,  it  is  law  that  a  sale  of  firm  property  by  one  partner 
passes  the  whole  title. 

283.  Paitner's  Lien  is  another  phase  of  the  partner's  interest 
worthy  of  notice,  since  it  is  frequently  very  valuable,  especially 
if  a  partner  has  associated  himself  with  what  proves  to   be  bad 
company. 

Suppose  partner  A  has  property  but  partners  B  and  C  have  none.  B  and 
C  are  charged  with  the  management  of  the  business  and  with  intent  to  defraud 
or  injure  A,  willfully  refuse  to  apply  the  firm  property  or  assets  to  the  firm 
debts.  A  cannot  escape  liability  because  of  the  joint  and  several  rule  already 
alluded  to  (§  279).  But  A  has  what  is  called  a  "partner's  lien"  or  "partner's 
equity,"  by  which  he  can  at  equity  force  B  and  C  to  apply  the  firm  assets  to 
the  payment  of  the  firm  debts  before  recourse  is  had  to  the  partners  individu- 
ally. This  right  does  not  affect  third  persons  doing  business  with  the  firm, 
but  is  merely  a  protection  for  a  partner  against  his  unrighteous  co-partners. 
Of  course,  if  there  is  no  firm  property  to  apply  then  this  "lien"  will  not  be 
worth  much. 

284.  Partner's  Recompense.  —  A  partner  is  not  entitled  to 
compensation  for  services  rendered  the  firm  (i.e.  wages  or  salary, 
unless  by  an  express  agreement),  even  though  he  has  been  more 
active  than  his  co-partners  in  pushing  the  firm  business.     But 
where  he  has  incurred  expense  or  personal  liability  on  behalf  of 
the  firm  in  the  usual  and  ordinary  conduct  of  its  business,  then  he 
must  be  reimbursed  by  the  firm. 

285.  DUTIES.  —  It  is  a  partner's  duty  to  exercise  reasonable 
skill  and  diligence  when  he  acts  for  the  firm,  and  he  is  liable  to  his 
partners  for  any  loss  caused  by  his  default  in  this  respect,     It  is 

188 


CONTRACTS    OF   ASSOCIATION  §287 

their  duty  to  exercise  the  utmost  good  faith  toward  each  other  at 
ail  times.  On  this  theory  the  parties  are  absolutely  free  to  choose 
whom  they  will  associate  with  (called  the  doctrine  of  "delectus 
personalis"  see  §  240-[1]);  since  the  relationship  must  of  necessity 
be  one  of  mutual  trust  and  confidence.  In  accord  with  this 
principle,  it  is  a  general  rule  that  all  profits  accruing  to  one 
partner  by  reason  of  his  individual  transactions  concerning  firm 
interests,  or  which  in  any  way  compete  with  firm  interests,  or 
profits  which  he  is  able  to  make  solely  because  of  his  connection 
with  the  firm,  must  be  accounted  for  to  the  firm.  A  partner  can- 
not buy  for  himself  from  the  firm,  nor  from  himself  for  the  firm, 
nor  in  any  way  make  his  and  its  interests  antagonistic.  No  ser- 
vices will  entitle  him  to  compensation,  other  than  by  a  division 
of  profits;  and  this  is  generally  held  to  apply  to  a  surviving 
partner  winding  up  firm  business.  (§  275.)  If  a  partner  enters 
into  a  rival  business,  or  uses  firm  money  for  other  purposes,  he 
must  account  to  his  co-partners  for  the  profits. 

LIMITED  OR  SPECIAL  PARTNERSHIPS 

286.  A  limited  partnership  is  one  that  is  composed  of  one  or 
more  general  partners  (who  are  governed  by  the  usual  rules  as  to 
their  powers,  duties,  and  liabilities,  see  §§  266-285),  and  one  or 
more  special  partners  who  have  placed  a  specific  sum  in  the 
business  and  may  lose  that,  but  are  not  liable  further. 

Limited  partnerships  were  unknown  to  the  common  law,  and 
can  exist  only  when  authorized  by  a  statute,  whose  provisions 
must  be  strictly  complied  with.  Their  chief  object  is  to  enable 
capitalists  t6  employ  their  wealth  in  trade  or  other  enterprises 
without  taking  an  active  part  in  the  management  of  the  business, 
and  without  risking  more  than  the  amount  originally  subscribed. 
The  formalities  which  must  be  observed  are  more  like  the  organ- 
izing of  a  corporation  than  of  an  ordinary  partnership,  but  should 
the  statutory  requirements  not  be  strictly  complied  with  the 
special  partner  may  lose  his  exemptions,  and  become  in  fact  but 
a  general  partner,  with  the  liabilities  of  such.  The  creation  of 
limited  or  special  partnerships  thus  permits  the  co-operation  of 
men  whose  chief  possessions  are  integrity  and  ability  with  those 
possessed  of  ample  financial  means. 

287.  Though  the  right  to  create  such  partnerships  exists  in 
all  the  States,  it  is  but  little  availed  of,  so  prevalent  has  the  "  cor- 

189 


§  288  CONTRACTS 

poration  habit  "  become.  Where  the  enterprise  is  not  sufficiently 
important  to  warrant  the  launching  of  a  corporation,  the  limited 
partnership  is  a  most  useful  form  of  organization. 

In  the  creation  of  limited  partnerships,  the  statutes  generally 
require  the  execution  and  filing  of  a  certificate  stating: 

( 1)  The  firm  name. 

(2)  The  general  nature  of  the  business  to  be  transacted. 

(3)  The  names  of  the  partners  interested,  distinguishing  the  general  from 
the  special,  and  giving  the  residences  of  each. 

(4)  The  amount  of  cash  contributed  by  each  special  partner. 

(5)  Dates  of  commencing  and  of  terminating  the  partnership. 

288.  Another  important  fact  is  that  the  special  partner  must  contribute 
actual  cash,  and  this  must  be  paid  in  before  the  certificate  (corresponding  to 
the  "articles")  is  filed.     An  honest  intention  to  pay  in  the  money  at  or  before 
the  time  appointed  for  the  commencement  of  the  partnership  cannot  remedy 
the  defect  if  the  money  was  not  actually  paid  in  when  so  alleged  upon  filing 
the  certificate.     The  object  of  this  provision  is  to  protect  the  public  by  provid- 
ing a  fund  upon  the  day  the  partnership  is  formed,  to  be  subject  thereafter 
to  no  contingencies  or  losses,  except  those  which  come  from  the  proper  busi- 
ness of  the  partnership. 

Though  the  general  partnership  theory  is  that  people  deal  with 
a  firm  solely  upon  the  individual  credit  of  its  members,  the  special 
partner  creates  a  fund  to  which  third  persons  can  look,  which 
gives  credit  to  the  whole  aggregation.  Thus  moneyless  persons 
who  possess  the  requisite  skill  and  knowledge  are  not  prevented 
from  embarking  upon  profitable  ventures.  It  is  perhaps  no  more 
than  just,  also,  that  as  the  special  partner  is  not  in  a  position 
to  share  in  or  direct  the  management,  he  should  have  his  liability 
limited  to  his  original  stake,  the  same  as  though  he  held  shares 
in  a  corporation. 

The  business  is  generally  conducted  in  the  names  of  the 
general  partners,  and  the  statute  may  require  all  the  names  of 
the  general  partners  to  appear  in  the  firm  name  or  be  displayed 
where  the  business  is  conducted. 

A  special  partner  risks  only  his  contribution.  He  has  no  title 
to  the  firm  assets,  and  nothing  can  be  taken  on  execution  by  his 
separate  creditors.  He  can  buy  of  the  firm  and  sell  to  it.  He 
has  priority  over  the  other  general  partners  in  the  distribution  of 
the  surplus  upon  winding  up. 

289.  The  NAME  of  a  limited  partnership  is  frequently  of 
prime  importance.     By     statute,  it  may  be  provided  that  the 
name  shall  contain  the  word  "  Limited  "  ;  that  it  shall  not  contain 
the  words,  "  &  Co." ;  nor  the  names  of  the  special  partners  upon 
penalty  of  their  becoming  general  partners.     Except  as  indicated 

190 


CONTRACTS    OF    ASSOCIATION  §292 

nearly  all  that  has  been  said  in  reference  to  general  partnerships 
applies  equally  to  limited  partnerships. 

JOINT-STOCK  COMPANIES 

290.  A  joint-stock  company  is  an  association  partaking  of  the 
nature  of  a  partnership  and  of  a  corporation.     It  is  formed  for 
purposes  of  profit,  arid  possesses  a  common  capital  contributed 
by  those  who  compose  it.     This  capital  is  commonly  divided  into 
shares  of  which  each  member  owns  one  or  more. 

The  members  of  a  joint-stock  company  are  liable  as  partners, 
while  their  shares  are  freely  transferable  like  shares  in  a  corpora- 
tion. In  a  partnership,  if  a  member  transfers  his  interest,  ipso 
facto  the  firm  is  dissolved,  but  nothing  of  the  sort  happens  in  a 
joint-stock  company.  Because  of  the  intimate  relation  (see 
§  285)  no  one  can  become  a  general  partner  without  the  consent 
of  the  other  members ;  in  joint-stock  companies  consent  or  assent 
of  the  other  members  is  immaterial.  If  a  member  retires,  how- 
ever, he  must  give  notice  in  order  to  terminate  his  liability,  as  in 
an  ordinary  partnership.  (See  §  273.) 

291.  The  powers  of  members  are  the  same  as  in  an  ordinary 
partnership,  unless  the  management  of  the  business  is  entrusted 
to  officers  similar  to  those  of  a  corporation.     Such  officers  have 
the  ordinary  powers  of  partners,  unless  there  are  restrictions  which 
are  brought  to  the  notice  of  persons  dealing  with  the  company. 
The  balance  of  the  shareholders  have  no  power  to  act  for  the 
company. 

The  liabilities  of  members  in  a  joint-stock  company  locate  it 
definitely  as  a  partnership  rather  than  as  a  corporation,  since  in 
the  absence  of  statutory  limitations,  the  members  are  liable  for 
the  whole  amount  of  the  company's  indebtedness.  As  to  the 
relations  among  themselves,  the  rights  of  the  partners  are  the 
same  as  in  an  ordinary  partnership. 

292.  If  a  joint-stock  company  is  organized  under  statutory 
provisions,  as  many  are,  it  approaches  closely  to  being  a  cor- 
poration and  is  considered  to  have  an  existence  distinct  and  apart 
from  the  members  who  compose  it.     It  then  has  a  perpetual 
existence  like  a  corporation,  unless  agreed  otherwise;  it  may  take 
and  hold  property,  and  enter  into  contracts  in  the  associate 
name;  the  management  is  in  a  Board  of  Directors;  and  if  sued, 
the  members  are  not  liable  until  the  Company's  property  is  wiped 

191 


§293  CONTRACTS 

out,  the  action  which  it  is  possible  to  take  against  the  members 
being  considered  supplementary  to  the  liability  of  the  company. 
This  is  the  status  in  neither  partnership,  nor  corporation,  as  we 
have  seen. 

Furthermore,  in  every  case,  the  joint-stock  company,  even 
though  organized  under  a  statute,  owes  its  existence  not  to  the 
sovereign  power  of  the  State  but  to  the  agreement  among  its 
members. 

293.  DISSOLUTION.  —  A  joint-stock  company  may  be  dis- 
solved by  the  mutual  consent  of  all  the  members,  or  under  the 
circumstances  provided  for  in  the  articles  of  association.  If 
organized  for  a  definite  term,  there  must  be  unanimous  consent 
to  dissolution,  but  a  court  of  equity  may  dissolve  such  a  company 
for  good  cause  shown  in  a  suit  begun  by  any  of  the  stockholders 
for  that  purpose. 


192 


QUESTIONS 

Questions  for  Study  and  Review  on  Chapter  VI 
CORPORATIONS 

1.  Why  should  an  engineer  know  something  of  corporations? 

2.  What  is  a  corporation?     How  regarded  in  law? 

3.  Suppose  a  person  becomes  sole  owner  of  the  stock  in  a. corpora' 
tion;  what  is  the  effect  upon  the  corporation?     How  must  he  convey 
its  land? 

4.  Where  is  a  corporation's  domicile?     Why  is  the  question  im- 
portant? 

5.  What  kinds   of  corporations   are   there?     Enumerate   those 
called  "  civil." 

6.  Compare  methods  of  acquiring  membership  in  partnerships 
and  in  corporations. 

7.  How  does  the  death  of  a  member  affect  each  type  of  association? 

8.  Referring  to  the  agency  powers  of  members  compare  a  partner- 
ship and  a  corporation. 

9.  With  regard  to  liability  for  the  Company's  debts,  in  which  of 
them  would  you  prefer  to  be  a  member?     Explain  why. 

10.  The  existence  of  a  corporation  and  of  a  partnership  rests 
upon  certain  contracts.     Who  are  the  parties  to  the  contracts  in  each 
case? 

11.  Can  one  stockholder  in  a  corporation  sue  another?    Is  it  the 
same  with  partners?     Can  you  tell  why  there  is  a  difference? 

12.  Name  other  forms  of  association  besides  partnership  and 
corporations. 

13.  What  are  the  test  questions  for  proving  the  existence  of  a  cor- 
poration? 

14-    What  are  the  three  essentials  to  the  formation  of  a  corporation  ? 

15.  What  was  the  direct  effect  of  the  Dartmouth  College  case 
upon  all  corporation  charters  subsequently  granted?     What  con- 
stitutional question  was  raised? 

16.  What  is  a  "  promoter  "?    Is  the  future  corporation  liable 
upon  his  contracts? 

17.  What  will  be  the  effect  if  the  promoter  perpetrates  fraud? 

18.  What  is  the  effect  of  non-compliance  with  the  statutes  in 
respect  to  subscriptions,  or  other  requirements? 

19.  How  were  corporations  formerly  chartered?     How  at  the 
present  time?     Why? 

20.  What  is  the  general  procedure  in  forming  a  corporation? 

193 


CONTRACTS 

21.  For  what  does  the  charter  serve?     What  is   the   leading 
"  rule  of  construction"? 

22.  What  is  the  scope  of  the  doctrine  of  implied  powers? 

23.  Name  some  of  the  common  implied  powers  of  a  corpora- 
tion. 

24.  The  common  law  powers  of  a  corporation  necessarily  follow 
its  creation  as  a  corporation.     Name  the  principal  ones. 

25.  What  is  meant  by ' ''ultra  vires"?     Why  is  an  (l 'ultra  vires" 
contract  invalid? 

26.  What  limits  are  now  placed  upon  the  doctrine  of  "ultra 
vires"? 

27.  Under  what  conditions  will  the  claim  of  uultra  vires"  fail 
of  recognition? 

28.  Explain  carefully  the  meaning  of  "  estoppel."     When  is 
it  applicable  to  corporation  contracts? 

29.  What  are  some  of  the  things  a  corporation  commonly  can 
NOT  do? 

30.  How,  or  by  whom  does  a  corporation  transact  business? 

31.  What  are  a  director's  duties  as  to  the  application  of  cor- 
porate funds? 

32.  Can  he  contract  with  himself  personally?     Why  is  this? 

33.  What  is  the  extent  of  a  corporation's  liability  in  tort?    Illus- 
trate. 

34.  How    are    corporations    generally    dissolved?     Name    the 
other  modes. 

35.  Is  there  any  difference  between  "  capital "  and  "  capital 
stock  "?     If  so,  what? 

36.  Recite  upon  the  contract  of  membership  between  stockholders. 

37.  State  the  difference  between  a  share  of  stock  and  a  stock  cer- 
tificate. 

38.  Which  would  you  prefer  to  own,  common  or  preferred  stock? 
Tell  why. 

39.  Explain  the  terms  "  full-paid  "  and  "  bonus  "  stock?     Is 
there  any  difference  in  the  owner's  liability  for  each?    If  so,  what? 

40.  When  may  assessments  be  levied  upon  stockholders? 

41.  Explain  what  you  understand  by  "  stock-watering."     What 
is  its  object  and  result? 

42.  In  general,  what  are  stockholders'  liabilities  for  corporate 
debts? 

43.  Recite  upon  special  statutory  liability. 

194 


QUESTIONS 

44»  When  will  the  directors  be  personally  liable  for  corporate 
debts? 

45.  What  are  a  stockholder's  rights  to  transfer  his  stock?     Any 
exceptions? 

46.  What  is  the  rule  with  reference  to  holding  stock  in  other  com- 
panies? 

47.  Give  a  definition  and  state  the  objects  of  public  corporations. 

48.  With  which  of  a  city's  charter  powers  is  the  engineer  most 
likely  to  have  to  deal? 

49.  What  about  fires,  city  fire  departments,  and  the  acts  of  the, 
city's  servants? 

50.  Recite  upon  the  city's  water  supply. 

51.  What  is  the  leading  restriction  imposed  upon  municipalities? 
Can  you  tell  why? 

52.  How  will  the  city  debt  limit  affect  its  liability  in  tort?     Or 
on  a  contract  calling  for  payments  in  excess  of  it? 

53.  Name  some  of  the  torts  for  which  the  corporation  is  not  held 
liable. 

54-  How  is  the  rule  as  to  lateral  support  applied  to  city 
streets? 

55.  What  is  a  municipal  corporation's  liability  as  to  the  con- 
dition of  its  streets?     What  about  insurance  against  accidents? 

56.  How  is  it  liable  with  reference  to  surface  water  dis -position , 
and  streams? 

57.  What  is  the  extent  of  its  liability  in  regard  to  sewers  and 
sewer  systems?     Cite  an  illustrative  case. 

58.  A,  B,  and  C  are  in  partnership.     Learning  that  in  a  cor- 
poration  there  are  less  individual  liabilities,  they  decide  to  form  one, 
draw  up  articles  of  association,  and  thereby  believe  they  are  a  cor- 
poration. 

X  is  a  partnership  creditor;  the  corporation  (if  there  is  one)  has 
not  enough  property  to  satisfy  the  debt  to  X.  (a)  Can  X  collect, 
and  if  so,  from  whom?  (b)  Suppose  A  owns  private  property,  but 
B  and  C  have  none.  What  result  then?  Give  your  reasons  in  both 
cases. 

59  (a)  M  is  a  partner  in  the  firm  of  M.,  N.  &  Co.,  and  agrees 
to  sell  his  interest  therein  to  T  in  consideration  of  T's  transferring 
to  him  20  shares  of  United  States  Steel  stock.  Is  this  arrangement 
legal  and  binding?  Explain  why,  or  why  not.  (b)  Suppose  X  is 
a  principal  creditor  of  the  M.  N.  Co.,  which  has  no  partnership 

195 


CONTRACTS 

assets,   and   that    M  has  private  property,   while    N  has 
Then  in  the  above  case,  can  X  collect  from  T?    If  not,  then  from 
whom? 

60.  The  A.  B.  Co.  is  a  corporation,  chartered  "  for  the  purpose  of 
making,  buying,  selling,  and  dealing  in  brick,"  etc.   Later,  finding  the 
brick  business  poor,  the  directors  decide  to  purchase  a  foundry  and 
machine  works  with  the  corporate  funds,  and  to  embark  upon  the 
manufacture  of  gas  engines.     The  sale  is  to  be  on  January  1,  1910t 
but  that  date  is  allowed  to  pass,  and  on  March  1,  the  Machine  Co. 
sues  the  Brick  Co.  for  breach  of  contract.     Can  they  recover?     Why, 
or  why  not? 

61.  Suppose  a  corporation  is  organized  for  the  purpose  of  doing 
railroad  construction  work  by  contract.     Can  it  lawfully  borrow 
money  with  which  to  speculate  on  margins  in  the  stock  market?     Give 
your  reasons. 

62.  (a)  Why  are  general  statutes  framed  to  cover  the  organization 
of  corporations? 

(b)  What  things  can  a  corporation  commonly  NOT  do? 

(c)  How  should  a  corporation  be  described  when  it  is  a  grantor 
in  a  deed? 

63.  (a)  What  is  a  share  of  stock?     (b)  What  is  a  stock  certificate? 
(c)  In  order  to  be  a  shareholder,  which  must  one  own?     (d)  What  is 
a  foreign  corporation? 

64>  (a)  How  is  membership  in  a  non-stock  corporation  acquired? 
How  in  a  stock  company?  (b)  How  may  corporations  be  dissolved? 
(c)  In  what  form  should  corporation  contracts  be  executed? 

65.  (a)  How  is  membership  in  a  corporation  proved?     (b)  What 
rights  have  creditors  against  the  shareholders  in  a  corporation? 

66.  Explain  the  functions  of  directors  in  a  corporation.      Are 
they  liable  upon  the  contracts  they  make  in  behalf  of  the  corporation, 
and  if  so,  when?    If  not,  tell  why. 


PARTNERSHIP 

1.  Give  some  of  the  reasons  for  forming  partnerships. 

2.  Explain  briefly  what  is  meant  by  a  partnership ,  and  state 
its  basis. 

3.  Who  cannot  become  partners?     Why  is  this? 

4.  Name  the  principal  matters  usually  covered  in  partnership 
articles. 

196 


QUESTIONS 

/ 

5.  What  is  the  meaning  of  a  "  partnership  by  implication  "? 
Are  the  obligations  under  it  as  binding  as  in  one  formed  by  express 
agreement? 

6.  How  may  one  become  a  partner  by  a11  holding  out  "? 

7.  Explain  the  test  for  determining  the  existence  of  a  partnership 
when  there  are  no  partnership  articles. 

8.  What  evidence  is  usually  looked  to  when  proof  of  a  partner- 
ship is  desired?    Is  this  conclusive? 

9.  Give  an  original  illustration  of  a  joint  enterprise.     Dis- 
tinguish it  from  a  partnership. 

10.  What  is  the  rule  as  to  partnership  profits?     Discuss  "  in- 
tention.11 

11.  What  are  the  principal  remarks  made  upon  firm  name? 
Explain  "  good  will.11 

12.  Outline  ike  case  under  "  Notice  and  Firm  Name.11.     Does 
it  appear  reasonable  and  proper  to  you? 

13.  What  is  the  importance  of  firm  name  with  reference  to  real 
estate? 

14.  What  determines  the  duration  of  a  partnership?     What  acts 
will  terminate  it?     Can  this  effect  be  provided  against,  and  if  so, 
how? 

15.  When  will  equity  decree  a  dissolution? 

16.  What  is  meant  by  "  winding-up  "  a  business,  and  who  does 
it?     When? 

17.  What  are  the  partners1  duties  upon  dissolution? 

18.  What  sorts  of  partners  are  there?     Name  at  least  four. 

19.  Explain  the  standing  of  the  various  partners  called  for  in 
Question  18. 

20.  Name  the  most  prominent  feature  of  an  individual  partners 
powers. 

21.  Tell  the  bearing  of  this  in  his  relations  to  outsiders. 

22.  What  things  may  a  partner  NOT  do?    What  CAN  he  do? 

23.  What  is  the  extent  of  a  partners  liability  for  firm  debts? 
24>    Explain  "  joint  and  several 1}  liability. 

25.  Compare  a  partners  liability  and  that  of  a  corporation  stock- 
holder. 

26.  What  is  the  liability  of  a  partnership  in  tort? 

27.  When  is  a  partners  liability  terminated? 

28.  How  may  he  terminate  it  with  reference  (a)  to  future  acts  oj 
the  firm?     (b)  As  to  past  obligations? 

197 


CONTRACTS 

29.  What  is  the  effect  of  a  discharge  in  bankruptcy  upon  the 
firm's  debts? 

30.  What  is  a  partner's  interest  in  a  firm  (a)  as  to  net  proceeds? 
(6)  As  to  firm  property? 

31.  When  would  you  care  to  attach  a  partner's  interest,  and  what 
would  you  get  by  it? 

32.  Tell  what  is  meant  by  a  "  partner's  lien."     When  is  it 
useful? 

33.  State  the  rule  as  to  a  partner's  compensation  and  reimburse- 
ment. 

34.  What  are  a  partner's  duties  as  to  good  faith  and  negligence? 
Illustrate. 

36.  What  is  a  limited  partnership?     Explain  the  status  of  a 
special  partner. 

37.  State  the  object  in  forming  limited  partnerships.     Why  is  it 
but  little  done? 

38.  Suppose  statutory  requirements  are  not  strictly  complied 
with,  —  what  is  the  effect  upon  the  special  partner? 

39.  What  about  "  prospective  "  capital  in  a  limited  partnership? 
What  is  the  object  of  the  rule?     Name  other  statutory  requirements. 

40.  Is  this  a  desirable  form  of  association?     Why? 

41.  What  are  the  leading  facts  as  to  the  status  of  a  special 
partner?     ... 

42.  What  is  the  importance  of  the  name  in  a  limited  partnership? 
Why? 

43.  Does  a  joint-stock  company  most  resemble  a  partnership  or 
a  corporation?    State  the  points  of  resemblance  to  each. 

44.  What  about  liabilities  of  members  and  transfer  ability  of 
stock? 

45.  How  is  a  joint-stock  company  managed? 

46.  Does  a  joint-stock  company  which  has  been  organized  under 
a  statute  require  a  charter?     Why? 

47.  How  does  such  an  association  come  to  an  end? 

48.  In  a  firm  of  three  partners,  two  object  to  the  signing  of  a  con- 
tract, a  fact  which  the  other  contracting  party  knows.     Nevertheless 
he  signs  a  contract  with  the  third  partner.     Is  the  contract  enforce- 
able?    Tell  why,  or  why  not. 

49.  Upon  forming  a  firm,  A  put  in  $5,000,  B,  $1,000,  and  C, 
his  skill.     After  all  the  firm  creditors  have  been  paid,  the  firm  has 
lost  $1,000,  and  in  addition,  A  has  loaned  the  firm  $1,000.     Show 
how  you  would  adjust  the  accounts  in  winding  up  the  business. 

198 


CHAPTER  VII 

CONTRACTS   OF  SALE  AND 
TRANSPORTATION 

The  commercial  world  is  roughly  divided  into  two  classes, — buyers  and 
sellers.  Their  mutual  relations  rest  solely  upon  contracts.  Because  of 
the  subject  matter's  universality,  and  the  multitudinous  instances  of 
selling,  the  law  of  Sales  is  bv  no  means  easy.  The  shading  between  its 
rules  is  often  subtle,  and  tracing  the  title  and  right  to  possession  is  often 
highly  difficult.  Yet  as  a  business-man  and  buyer  of  commodities,  the 
engineer  should  appreciate  their  importance,  and  will  profit  by  their 
cognizance. 

If  the  seller  selects  goods,  delivers  them  to  a  common  carrier,  and 
they  are  lost  before  reaching  the  buyer,  who  must  stand  the  loss?  If  the  sel- 
ler in  good  faith  ships  goods  to  a  customer  whom  he  subsequently  learns  is 
insolvent,  must  he  idly  see  his  consignment  enrich  the  other  creditors? 
Or  does  the  law  assist  him  to  protect  his  own  interests?  If  the  goods 
have  changed  hands,  and  the  title  is  unquestionably  in  the  buyer,  what 
rights  has  the  unpaid  vendor?  And  suppose  fraud,  in  any  of  its  numerous 
forms,  enters  the  transaction, — where  do  the  parties  stand? 

When  goods  are  placed  in  the  hands  of  a  common  carrier,  and  he  agrees 
to  transport  them,  what  are  the  responsibilities,  immunities,  and  privileges 
which  thereby  accrue  to  him?  Must  the  carrier  provide  abundant 
facilities?  What  if  he  makes  a  mis-delivery?  Has  he  any  claim  upon 
the  goods  for  his  unpaid  charges? 

These  questions,  and  others  equally  important,  are  treated  in  this 
chapter.  The  average  business  man  will  find  them  useful,  as  well  as 
the  engineer  and  contractor. 

SALES 

294.  DEFINITION.  —  A  sale  is  the  transfer  of  the  property 
in  a  thing  for  a  price  in  money.  *  As  the  transaction  is  a  contract, 
all  the  rules  of  contract  apply.  There  must  be  competent  parties, 
a  proper  subject  matter,  the  title  to  which  is  in  the  seller,  an 
agreement  to  transfer  the  property,  and  a  sufficient  consideration, 
i.e.  the  payment  or  agreement  to  pay  a  price  in  money  by  buyer 
to  seller.  The  following  transactions  resemble  sales  somewhat, 
but  are  different. 

A  bailment  where  one  merely  keeps  possession  for  another,  no 
title  passing;  a  consignment,  title  remaining  in  consignor,  con- 
signee being  an  agent,  merely ;  exchange  or  barter ;  a  lease  (though 

*  By  the  Sales  Act  (a  codification  of  the  greater  portion  of  the  common 
law  on  Sales  which  has  been  recently  [1910]  enacted  into  statute  law  by  many 
of  the  States)  it  is  provided  that  the  price  may  be  paid  in  any  personal  property. 
This  was  called  "  barter  "  at  the  common  law;  the  ancient  and  customary 
definition  of  a  sale  was  as  given  above. 

199 


§295  CONTRACTS 

where  there  purports  to  be  a  lease  which  is  really  a  sale  with  pay- 
ment by  instalments,  title  to  pass  on  completion  of  payments,  it  is 
generally  held  to  be  a  sale  in  fact) ;  a  mortgage;  and  a  pledge. 

295.  GENERAL  CHARACTERISTICS.  —  Sales  are  classified 
as  (a)  executed,  whe  e  the  title  passes  instantly,  and  in  the  present 
upon  formation  of  the  contract  of  sale ;  and  (6)  executory,  where  it 
is  agreed  that  title  shall  pass  at  some  time  in  the  future,  upon  com- 
pletion of  the  subject  matter,  or  upon  performance  of  a  condition. 
The  intention  of  the  parties,  as  in  other  contracts,  will  often  show 
whether  a  given  sale  is  executory  or  executed. 

The  rules  on  competency  (see  §  23)  to  contract  are  the  same 
here  as  in  contracts  generally,  except  that  where  necessaries  are 
sold  to  an  infant,  lunatic,  or  drunken  person,  he  must  pay  a  reason- 
able price  therefor.  There  must  be  mutuality,  also.  The  parties 
must  have  in  mind  the  same  thing  at  the  same  time,  intending  to 
bind  themselves  by  a  bargain  mutually  agreed  upon,  and  the 
offeree  must  make  his  assent  known  to  the  offeror. 

Thus  where  a  person  was  to  buy  a  horse  if  warranted  "  sound  and  quiet 
in  harness,"  the  horse  was  delivered  with  the  warranty  that  it  was  "  sound 
and  quiet  in  double  harness,"  it  was  held  that  the  assent  was  not  mutual. 

Generally  no  formality  is  required  in  the  contract,  as  it  may  be 
oral,  written,  or  it  may  be  implied  from  the  conduct  of  the  parties. 
All  will  be  equally  binding  unless  the  Statute  of  Frauds  (see  §  299) 
requires  writing  in  the  particular  instance. 

296.  SALE  by  NON-OWNER.  —  Where  the  goods  have  been 
stolen,  the  thief  of  course  has  no  title  to  the  goods  and  cannot 
pass  any.     But  if  the  goods  are  obtained  by  fraud,  the  title  ac- 
quired will  vary  according  to  circumstances. 

Suppose  A  gets  goods  by  pretending  to  be  X.  He  gets  no  title  and  can 
transmit  none;  but  if  the  party  defrauded  really  intended  to  pass  the  title 
to  the  person  dealt  with,  though  the  seller  was  in  some  respects  deceived, 
still  the  fraudulent  buyer  can  pass  a  good  title  to  an  innocent  purchaser 
before  the  first  seller  rescinds  the  contract.  The  last  buyer  must  act  in  good 
faith,  and  without  notice  of  the  defect  in  the  title. 

297.  Cases  where  a  non-owner  may  sell  are:  — 

A  pawn-broker  may  sell  articles  unredeemed  at  the  appointed 
time ;  a  sheriff  may  pass  good  title  to  property  upon  an  execution 
sale;  factors,  brokers,  and  other  agents,  may  give  good  title, 
though  they  possess  none  personally.  But  in  general,  if  the  seller 
has  no  title,  or  no  authority  to  sell,  there  is  a  failure  of  considera- 
tion, and  money  paid  by  the  buyer  may  be  recovered. 

298.  GOODS  NOT  IN  EXISTENCE.  —  Unless  the  property 

200 


CONTRACTS  OF  SALE  AND  TRANSPORTATION       §300 

intended  to  be  sold  is  in  existence  at  the  time  of  making  the  con- 
tract, there  is  no  sale,  but  only  an  executory  contract  to  sell,  and 
some  further  act  or  circumstance  must  occur  before  the  title  passes. 
Neither  is  there  a  contract  if  the  subject  matter  has  ceased  to  be 
the  seller's  property. 

Thus,  in  a  case  where  A  sold  a  cargo  of  corn  loaded  upon  a  vessel  that 
had  not  yet  arrived,  the  master  of  the  vessel,  finding  there  was  danger  of 
the  grain  spoiling,  had  sold  it  a  month  before  the  agreement  between  A  and  B. 
There  was  no  contract. 

What  really  happens  in  a  contract  for  the  sale  of  goods  not  yet 
in  existence  is  that  the  parties  agree  to  sell  and  pass  title  later.  The 
rule  preventing  such  a  contract  is  to  a  certain  extent  avoided  by 
saying  that  an  object  that  is  certain  to  come  into  existence  may 
be  made  the  subject  of  a  present  sale,  as  the  unborn  young  of 
animals  during  the  period  of  gestation ;  the  fruits  of  the  soil,  etc. 
Of  course  if  the  things  have  passed  out  of  existence,  there  can  be  no 
sale  because  of  impossibility  of  performance,  as  in  the  grain  case. 

299.  STATUTE  OF  FRAUDS  (A.  D.  1677)  is  the  name  of  a 

general  English  statute  with 

numerous  provisions  designed  to  prevent  frauds  and  perjuries. 
The  Seventeenth  Section  of  the  statute  applies  especially  to  sales, 
and  is  in  general  force  throughout  the  United  States  to-day.  '  This 
Statute  provides  that  in  all  contracts  for  the  sale  of  "  goods,  wares, 
and  merchandise "  of  more  than  $50  value  (Sales  Act  makes 
amount  $500  in  some  States),  there  shall  not  be  a  binding  con- 
tract unless  certain  requirements  are  complied  with : 

(1)  The  buyer  must  receive  and  actually  accept  part  of  the 
goods  sold ; or 

(2)  He  must  give  something  to  bind  the  bargain,  or  in  part 
payment;  or 

(3)  There  must  be  some  note,  or  memorandum  in  writing  refer- 
ring to  the  bargain,  made  and  signed  by  the  party  to  be  charged, 
or  by  his  duly  authorized  agent. 

300.  The  Statute  is  held  to  apply  to  executory  as  well  as  to 
executed  contracts  of  sale,  but  not  to  contracts  for  work,  labor 
and  materials.     Though  apparently  simple,  this  classification  is 
not  easy  to  work  out  in  every  case.     The  English  and  the  Massa- 
chusetts rule,  most  commonly  followed,  is  that  where  the  parties 
intend  to  transfer  the  title  in  a  particular  chattel,  though  it  is  to  be 
the  product  of  the  work,  labor,  and  materials  of  the  seller,  then  the 
Statute  applies,  —  i.e.  the  contract  to  be  binding  must  be  made 

201 


§301  CONTRACTS 

in  accordance  with  its  terms.  Thus  if  a  cabinet-maker  manu- 
factured a  special  piece  of  furniture  in  large  quantities,  all  being 
of  the  same  pattern,  price,  and  quality,  an  order  for  one  of  them 
would  be  "  within  the  Statute."  That  is  to  say,  these  articles 
would  fall  within  the  category  "  goods,  wares,  and  merchandise." 
But  if  special  variations  as  to  workmanship,  materials,  or  otherwise 
were  to  be  introduced  for  the  buyer  so  that  the  thing  could  be 
said  to  be  manufactured  for  him,  then  it  is  a  contract  for  work  and 
materials,  and  hence  not  within  the  Statute. 

301.  The  foregoing  distinction  may  appear  academic.     The 
following  illustration  will  show  its  practical  importance,  the  facts 
being  substantially  those  of  a  Massachusetts  case. 

X,  a  carriage  manufacturer,  was  the  plaintiff.  B  was  a  customer  who 
visited  the  shop  and  bargained  with  X  for  a  certain  unfinished  carriage, 
specifying  and  selecting  the  color  of  upholstery;  the  particular  trimmings 
which  he  desired;  just  how  long  he  wished  each 'coat  of  paint  and  varnish  to 
be  dried;  and  giving  X  the  design  of  a  monogram  to  be  painted  upon  the 
carriage,  etc.;  all  of  which  X  promised  to  comply  with,  and  did  so  in  due 
course.  It  is  to  be  noticed  that  the  whole  transaction  was  verbal;  there 
was  no  writing;  B  paid  no  earnest  money,  nor  consideration;  and  of  course 
he  accepted  no  part  of  the  goods  sold. 

In  due  season  X  notified  B  that  the  carriage  was  ready  for  inspection, 
and  later,  that  it  was  completed.  B  saw  the  carriage,  was  satisfied  with  it, 
and  asked  X  to  wait  a  little  time  for  the  money.  X  assented,  and  while 
holding  the  carriage  in  storage  the  carriage  factory  burned,  destroying  this 
carriage  among  others. 

Then  X  sued  B  for  the  price  of  the  carriage,  claiming  that  it  was  B's 
property,  and  he  was  merely  storing  the  same  after  completion,  at  B's  risk, 
and  demanding  to  be  paid  just  as  though  B  had  taken  it  away  upon  com- 
pletion. B's  defense  to  the  suit  was:  "  Statute  of  Frauds,"  i.e.  "  The  Statute 
governs  this  transaction,  and  as  you  have  not  complied  with  it  there  was  no 
enforceable  contract  of  sale  between  us."  Hence  X  tried  to  show  that  the 
carriage  was  especially  built  for  B,  and  so  came  under  the  class  of  contracts 
for  material  and  labor,  where,  as  we  have  seen,  the  provisions  of  the  Statute 
need  not  be  observed.  X's  contention  was  upheld  by  the  Court,  as  seems 
just,  and  the  loss  of  the  carriage  fell  upon  B.  He  had  to  pay  X  the  full  price 
though  he  never  received  the  carriage. 

302.  Where  the  contract  is  for  the  sale  of  things  commonly 
manufactured  and  supplied  to  the  general  market  by  the  vendor, 
the  contract  is  one  of  sale,  —  though  the  articles  are  to  be  sub- 
sequently made,  —  and  not  a  contract  to  manufacture. 

Thus,  suppose  an  order  was  received  by  a  manufacturer  for  200  steel 
wheelbarrows,  but  as  he  had  not  that  many  on  hand,  he  replied  that  he  would 
make  and  deliver  the  same  during  the  season.  This  would  be  a  contract  of 
sale,  and  within  the  Statute. 

Further  it  is  held  that  "  entire  "  contracts  where  the  value  of  the  whole 
exceeds  $50,  fall  within  its  provisions,  as  a  sale  of  100  cords  of  wood  at  $1.25 
per  cord;  or  where  the  value  (subsequently  ascertained),  exceeds  $50  (or  the 
statutory  amount),  as  where  a  man  sells  all  the  wood  a  certain  lot  will  produce, 
and  it  is  found  that  there  is  more  than  350  worth. 

202 


CONTRACTS    OF    SALE    AND    TRANSPORTATION  §303 

By  the  common  law,  when  the  terms  of  a  sale  had  been  agreed 
upon,  and  the  bargain  struck,  if  the  seller  had  nothing  more  to  do 
to  the  goods,  the  sale  was  complete.  As  we  have  seen,  the  Statute 
of  Frauds  made  something  more  necessary. 

A  Common  Law  Sale  Before  1677.  In  order  to  make  the  Statute  of 
Frauds  more  significant  to  the  student,  let  us  imagine  a  sale  made  previous 
to  its  enactment.  Suppose  X  bargains  with  A  for  A's  horse;  the  terms  are 
agreed  upon  and  the  bargain  is  struck;  A  says,  "The  horse  is  yours."  X 
goes  away,  leaving  the  horse  with  A  until  a  more  favorable  time  for  removing 
him.  Then  A  sells  the  horse  over  again  to  Y  who  does  take  it  away.  Now 
X  sues  A  for  the  wrongful  disposal  of  X's  horse.  Plainly  he  should  win, 
because  there  was  a  genuine  transaction  between  X  and  A. 

Next  suppose  that  X  had  never  bought  the  horse,  but  that  he  falsely 
accuses  A  with  having  wrongfully  disposed  of  X's  horse.  A  will  of  course 
deny  the  accusation,  and  say  that  X  never  owned  the  horse  which  A  sold  to 
Y.  Then  X  brings  perjured  witnesses,  and  perhaps  succeeds  in  making  out 
his  case  against  A.  It  will  be  seen  how  disastrous  to  security  in  one's  property 
rights  the  activities  of  such  a  band  of  blackmailers  might  become.  The 
Statute  of  Frauds  specifies  the  several  kinds  of  evidence  of  the  sale  some  of 
which  must  now  be  shown,  and  says  that  no  other  sort  will  be  accepted. 

303.  SATISFYING  THE  STATUTE.  —  Rule  (1).  "The 
buyer  must  receive  and  actually  accept  part  of  the  goods  sold."  A 

person  may  accept  goods  to  the  extent  of  suffering  them  to  come 
to  or  be  left  at  his  residence  or  place  of  business,  and  yet  not 
"  accept  "  them  as  contemplated  in  the  Statute,  for  it  is  held  that 
the  buyer  must  assent  that  the  goods  remain  and  be  taken  by 
him  as  performance  of  the  contract. 

According  to  the  party's  interest  it  may  be  contended  that 
there  was  a  delivery  and  acceptance  sufficient  to  satisfy  the 
Statute,  thus  rendering  the  contract  enforceable,  while  the  buyer 
might  claim  he  never  received  the  goods.  Such  was  a  case  in  120 
Mass.  290,  viz.: 

Defendant  went  to  plaintiff's  store  and  bargained  orally  for  certain 
leather.  A  fortnight  later  he  again  went  to  the  store,  weighed,  examined, 
and  separated  this  leather  from  the  stock,  to  be  taken  away  when  paid  for. 
Though  they  waited  for  the  defendant  six  months,  and  would  not  permit 
him  to  take  away  the  leather  without  paying  for  it,  yet  when  their  store 
burned,  destroying  the  leather,  the  plaintiff  sued  the  defendant  for  the  price. 
The  plaintiff  claimed  that  the  goods  belonged  to  the  defendant,  and  that 
there  had  been  a  "  constructive  "  delivery  to  him  sufficient  to  satisfy  the 
Statute.  But  this  the  Court  would  not  allow.  Hence  the  defendant  did  not 
have  to  pay. 

Rule  (1)  will  especially  apply  if  the  contract  is  for  goods  not 
ascertained  when  the  contract  is  made.  Upon  receipt  of  such 
goods  the  buyer  has  a  reasonable  time  in  which  to  examine  them,* 

*The  Sales  Act,  Sec.  48,  regulates  this  with  reference  to  C.  O.  D.  sales, 
and  gives  no  right  to  examine  unless  by  special  agreement. 

203 


§  304  CONTRACTS 

but  if  he  deals  with  them  as  though  he  had  in  fact  accepted  them 
by  making  a  resale,  for  example,  this  will  be  an  acceptance. 

304.  Acceptance  may  be  consummated  both  by  manual  trans- 
fer of  possession,  or  by  agreement  without  actual  delivery  of  the 
goods.     Receipt  by  agreement,  or  "  constructive  delivery  "  as  it 
is  called,  often  presents  problems  not  easy  of  solution,  since  the 
goods  may :  — 

(a)  Remain  in  the  possession  of  the  seller,  while  he  becomes 
the  buyer's  bailee,  —  he  merely  retains  custody  of  them  for  the 
buyer ; 

(b)  Be  in  the  possession  of  a  third  person  as  bailee  of  the  seller, 
and  the  third  person  becomes  bailee  for  the  buyer,  with  the  con- 
sent of  the  seller ;  or 

(c)  Be  in  the  possession  of  the  buyer  who  is  holding  them  as 
bailee  for  the  seller,  and  who  with  the  seller's  consent,  begins  to 
hold  them  as  owner. 

The  title  passes  by  reason  of  the  agreements  between  these 
parties,  and  the  difficult  part  of  the  problem  is,  in  a  complicated 
set  of  facts,  to  tell  just  where  the  title  is  at  a  particular  moment. 
Upon  the  answer,  the  question  of  the  ownership,  or  the  loss,  of 
much  valuable  property  may  depend. 

An  illustration  of  the  case  under  (a)  might  be  where  the  parties  go  to 
the  seller's  warehouse,  and  select  the  goods,  but  the  seller  agrees  to  keep 
custody  until  some  time  when  it  is  convenient  for  the  buyer  to  remove  them ; 
nevertheless,  the  title  to  the  goods  is  in  the  buyer. 

(6)  Suppose  a  commission  merchant  has  purchased  a  car-load  of  lumber, 
and,  having  arrived  at  the  freight  yard,  it  is  being  held  as  the  merchant's 
property.  Without  removing  the  lumber,  the  merchant  sells  it  to  X,  endorses 
the  bill  of  lading  which  X  takes  to  the  freight-office.  The  Company  then 
assents  to  holding  the  lumber  for  X  until  it  is  convenient  for  him  to  unload 
and  release  the  car. 

(c)  A  warehouseman  has  goods  in  storage  for  A  with  a  right  to  sell  such 
of  them  on  commission  as  he  can.  Suppose  he  buys  them  himself, —  he  thus 
succeeds  to  absolute  title,  in  addition  to  their  custody. 

305.  Rule    (2).     Binding   the   Bargain,   or  Part  Payment.  — 

((Earnest  Money"  as  it  used  to  be  called,  is  something  of  value, 
not  forming  part  of  the  purchase  price,  given  to  mark  final  assent 
to  the  bargain.  Part  payment  is  the  delivery  of  money  or  any- 
thing of  value,  offered  and  accepted  as  such  between  the  parties, 
and  may  be  made  at  the  time  or  subsequently  to  making  the  con- 
tract of  sale.  It  is  analogous  to  paying  something  as  consideration 
for  keeping  an  option  open. 

The  price  may  be  paid  at  once,  or  at  some  future  time  agreed 
upon.  The  terms  (price)  may  be  expressed  in  the  contract,  but  if 

204 


CONTRACTS  OF  SALE  AND  TRANSPORTATION       §307 

not,  the  reasonable  value  of  the  goods  is  presumed  to  have  been 
understood ;  sometimes  certain  persons  are  designated  to  name  the 
price,  —  the  sale  is  not  complete,  and  title  does  not  pass  until  the 
appraisers  have  acted  (for  this  is  a  condition  precedent). 

306.  Rule  (3).     The  Memorandum.  —  The  third  provision  of 
the  Statute  of  Frauds  requires  some  memorandum  in  writing  to 
witness  making  the  contract  of  sale,  unless  it  is  rendered  unneces- 
sary by  the  fulfillment  of  provisions  (1)  or  (2)  just  discussed.     The 
wisdom  of  this  rule  is  apparent,  as  it  prevents  disputes  when  other 
evidence  to  the  transaction  has  disappeared. 

No  especial  form  is  required  for  this  memorandum  so  long  as  it 
contains  the  essential  terms  of  the  contract,  and  is  signed  by  the 
party  to  be  charged,  or  his  agent.  The  seller  need  not  sign  since 
the  document  will  naturally  be  in  his  possession  as  the  evidence 
upon  which  to  bring  suit,  if  necessary.  The  memorandum  should 
state  clearly  the  names  of  the  parties,  distinguishing  the  buyer 
from  the  seller ;  the  price,  if  any  has  been  agreed  upon ;  a  descrip- 
tion of  the  goods  sold;  and  also  any  other  material  terms  of  the 
contract. 

The  effect  of  non-compliance  with  the  Statute  is  that  a  Court 
will  not  recognize  the  contract.  Of  course  numberless  contracts 
are  made  daily,  where  the  Statute  is  not  complied  with.  So 
long  as  the  parties  live  up  to  their  oral  or  implied  agreements,  no 
particular. harm  is  done.  The  discussion  has  been  given  to  show 
what  formalities  must  be  observed  in  case  one  party  is  obliged 
legally  to  enforce  his  rights  against  the  other. 

307.  WHEN  DOES  TITLE  PASS? —  Generally    in    a    sale 

of  specific  goods,  the 

title  passes  when  the  parties  intend  it  to  pass  ;  and  unless  they  de- 
clare or  show  that  they  intend  otherwise,  it  will  be  presumed  that 
they  intended  it  to  pass  when  the  contract  was  made.  Where  the 
elements  of  an  executed  contract  of  sale  are  present  title  passes  im- 
mediately, whether  possession  does  or  not.  The  difficulty  is  in 
telling  whether  a  contract  is  an  executed  one  or  not. 

By  referring  to  §  295  the  essential  meaning  is  seen  to  be  that 
an  executory  contract  of  sale  takes  effect  in  the  future  when  some 
condition  precedent  has  been  performed. 

This  is  where  the  seller  is  bound  to  do  something  to  the  goods  for  the 
purpose  of  putting  them  into  marketable  shape.  Illustrations:  cotton  to 
be  ginned  and  baled;  grain  to  be  threshed;  or  where  the  seller  is  to  weigh, 
measure,  or  test  the  goods  for  the  purpose  of  ascertaining  the  price,  or  to 

205 


§  308  CONTKACTS 

find  whether  they  are  equal  to  a  specified  grade  or  quality.     Then  the  property 
does  not  pass  until  the  specified  act  is  done. 

The  effect  is  that  where  the  contract  of  sale  designates  a  specific 
chattel,  as  such  and  such  a  pump,  or  stone-crusher,  if  the  buyer 
agrees  to  take  the  article  and  to  pay  the  stipulated  price,  then 
title  passes  instantly,  no  matter  where  the  possession  is.  This  is 
an  executed  contract  of  sale. 

308.  SOMETHING  REMAINING  TO  BE  DONE.  —  As  al- 
ready said,  if  something  remains  to  be  done  to  put  the  goods  into 
deliverable  condition  many  difficulties  may  arise.  Frequently  a 
fire  or  other  casualty  destroys  or  damages  the  property,  and  it  is 
highly  important  to  know  who  possesses  the  title  at  a  particular 
moment,  since  the  owner  must  bear  the  loss. 

Conditions  to  Passing  Title.  —  Where  by  the  contract  there  is  a 
condition  precedent  to  the  passage  of  title,  that  condition  must 
be  fulfilled  before  the  title  passes. 

Thus,  if  a  motor  was  to  be  delivered  f.o.b.  New  York  (by  the  terms  of 
sale),  and  it  was  lost  in  a  train-wreck  while  en  route  from  Pittsburg,  the  loss, 
so  far  as  the  buyer  and  seller  are  concerned,  must  fall  on  the  seller.  It  was 
condition  precedent  to  the  passing  of  title  that  the  pump  be  delivered  in 
New  York. 

Similarly,  if  the  contract  calls  for  delivery  of  a  certain  part  of 
the  goods  at  stated  times,  the  buyer  may  repudiate  the  entire  con- 
tract if  the  conditions  as  to  delivery  are  not  carried  out.  But  if 
the  contract  is  in  fact  separable,  and  not  entire,  the  result  will  be 
different.  If  payment  is  to  be  made  in  installments,  the  last  one 
must  be  paid  before  title  passes.  The  delivery  of  the  goods  at  a 
specified  time  and  place  may,  of  course,  be  made  a  condition  prec- 
edent to  the  passage  of  title.  (For  a  further  treatment  of  the 
intention  as  affecting  the  passage  of  title  see  Appendix  Note  No.  21.) 

In  an  old  English  case,  200  bales  of  goat  skins,  5  dozen  to  the  bale,  were 
to  be  sold  at  57  shillings  per  dozen.  By  the  usage  of  the  trade,  it  was  the 
seller's  duty  to  check  the  count  of  all  the  skins  in  each  bale.  The  skins  were 
destroyed  by  fire  before  the  counting  was  done,  and  it  was  held  that  the 
property  had  not  yet  passed.  Therefore  the  loss  was  on  the  seller. 

In  another  case,  all  the  bark  stacked  in  a  certain  place  was  sold  at  a  price 
per  ton,  the  cost  of  weighing  being  borne  jointly  by  both  parties.  A  part 
had  been  weighed,  delivered  and  paid  for,  when  the  remainder  was  damaged 
by  a  flood.  The  Court  held  that  the  unweighed  residue  was  the  property  of 
the  seller,  even  though  the  contract  was  an  "  entire  "  one  for  all  the  bark  in 
the  lot. 

These  are  English  cases.  Some  American  courts  have  held 
differently,  saying  that  where  nothing  but  weighing  and  measur- 
ing remained  to  be  done,  the  title  was  in  the  buyer  without  waiting 
for  these  things  to  be  done  by  the  seller.  Probably  most  American 

206 


CONTRACTS  OF  SALE  AND  TRANSPORTATION       §312 

courts  follow  the  English  rule.  There  is  agreement  upon  this 
point  at  least,  that  where  the  goods  have  been  delivered  to  and 
accepted  by  the  buyer,  the  title  is  vested  in  him. 

309.  In   considering  sales  made  conditionally  it  should  be 
noticed  that  the  oft-recurring  principle  of  contracts  applies,  viz. : 
The  intention  of  the  parties  is  to  govern.     They  can  make  the  title 
pass  at  any  chosen  time,  irrespective  of  what  acts  remain  to  be 
done  to  the  goods. 

310.  CONDITIONAL  SALES. —There  is  another  class  of 
cases  where  something  extraneous  to  the  chattels  is  to  be  done  or 
accomplished  by  the  buyer  as  a  condition  precedent  to  the  passage 
of  title.     Until  the  condition  is  fulfilled  the  title  does  not  pass, 
even  though  the  goods  are  in  the  possession  of  the  buyer. 

A  contractor  bargains  for  ten  cars  of  cement  conditionally  upon  securing 
the  X.  Y.  Z.  ontract.  The  ccement  manufacturer  or  dealer  wishes  to  close 
the  trade  as  he  supposes;  or  to  get  room  in  his  storehouse;  or  believing  the 
buyer  is  sure  to  get  the  contract, — ships  the  cement  which  arrives  before  the 
contract  is  let.  Our  contractor  does  not  secure  the  job,  however,  but  is  sued 
by  the  cement  man  for  the  price  of  the  ten  cars.  Of  course  title  never  came 
to  him,  hence  he  need  not  pay.  This  result  is  easily  worked  out  by  applying 
the  elementary  rules  of  contract  law.  But  this  does  not  mean  that  the 
contractor  can  retain  possession  of  the  cement,  and  not  pay  for  it. 

311.  Sales  on  Approval. — Another  kind  of  sales  upon  con- 
dition is  where  the  buyer  takes  possession  of  the  chattel  for  trial 
or  approval,  the  condition  precedent  to  title  passing  being  his  satis- 
faction with,  or  approval  of,  the  particular  article.     Though  this 
is  delivery,  it  is  not  acceptance  sufficient  to  pass  title  irrevocably 
until  the  buyer  signifies  his  approval  or  satisfaction.     (That  is  to 
say,  theHitle  passes  to  the  buyer  but  is  subject  to  being  re-vested 
in  the  seller  upon  the  goods  being  returned  to  him.)     Upon  expira- 
tion of  the  time  limited  for  trial  or  acceptance  (if  there  is  a  time 
set,  and  failing  a  time  limit,  then  upon  the  expiration  of  a  reason- 
able time),  the  title  wiU  pass.     What  is  a  reasonable  time  would, 
of  course,  be  a  question  of  fact  for  a  jury. 

312.  SALE  of  UNAPPROPRIATED  GOODS.  —  Suppose  a 
dealer  has  twenty  concrete  mixers  in  his  warehouse,  and  you 
agree  with  him  to  buy  ten.     Though  the  bill  of  sale  is  fully  executed 
still  you  own  no  mixers  until  he  has  gone  to  the  warehouse  and 
'•'  specifically  appropriated  "  ten  machines  to  your  contract.    When 
he  has  set  them  aside,  tagged  them  for  you,  or  performed  some 
other  unequivocal  act  of  the  same  nature,  then  the  property  (title) 
in  them  passes  to  you,    A  little  thought  will  show  this  to  be  a 

207 


§313  CONTRACTS 

useful  and  necessary  rule.     The  law  books  say :    "  Title  to 
curtained  goods  cannot  pass  by  sale,  merely."     Of  this,  more  may 
be  said  later.     (See  also  Appendix  Note  21  [  3  ].) 

But  where  the  goods  sold  are  part  of  a  larger  bulk  of  vjiiform 
character,  such  as  grain,  oil,  or  coal,  it  is  generally  held  that  prop- 
erty in  an  undivided  part  may  be  so  transferred,  without  appro- 
priation, or  separation  of  the  part  sold  from  the  main  bulk.  This, 
again,  is  a  rule  of  practical  usefulness. 

313.  The  word   "  appropriation "   as   here  used   means   the 
selecting,  setting  apart,  or  actually  .putting  the  goods  into  such  a 
situation  that  the  buyer  may  come  and  take  them.     The  appro- 
priation may  in  different  cases  be  performed  by  either  the  buyer 
or  seller,  either  of  them  acting  with  the  assent  of  the  other.     Con- 
troversies arise  only  where  the  selection  is  to  be  made  by  the 
seller.     Where  the  buyer  is  to  make  the  selection,  the  appropriation 
takes  place  when  he  declares  his  choice.     But  if  the  selection  rests 
with  the  vendor,  it  may  prove  difficult  to  tell  at  what  particular 
moment  the  appropriation  has  vested  the  title  of  the  commodity 
in  the  buyer,  as  it  is  the  owner  who  must  bear  the  loss  in  case  of 
destruction,  whether  he  be  vendor  or  vendee.     Suppose  you  are 
a  railroad  contractor  and  order,  say,  a  dozen  tents  from  a  dealer's 
stock,  and  it  is  his  duty  to  appropriate  the  same ;  it  may  be  hard 
to  determine  at  what  precise  point  you  are  no  longer  at  liberty 
to  change  your  mind.     An  enormous  number  and  variety  of  cases 
have  arisen  in  about  this  same  way,  and  examples  will  doubtless 
occur  to  the  student's  mind. 

314.  As  before  indicated,  the  parties  may  by  contract,  specify 
at  what  instant  or  by  what  acts  title  shall  be  complete.     Litigation 
has  arisen  because  they  did  not  so  specify,  and  this  has  led  to  the 
development  of  the  common  law  rules  just  discussed.     As  to 
articles  manufactured  to  order,  completion  of  them  according  to  the 
contract  followed  by  delivery,  or  tender  of  delivery,  is  such  an 
appropriation  as  will  pass  title.     This  seems  just,  also.     And  it  is 
settled  that  delivery  by  the  seller  to  a  carrier  in  the  manner  directed 
by  the  buyer  is  a  sufficient  appropriation  (but  see  §  315),  and 
should  loss  occur  it  falls  on  the  buyer. 

315.  DELIVERY  TO  A  CARRIER,  and  JUS  DISPONENDL 
—  Where,  by  agreement,  the  title  is  to  pass  upon  delivery  to  a 
carrier  as  just  noted  (§  314),  the  seller  can  still  maintain  his  grasp 
on  the  goods  until  he  is  assured  of  payment  by  the  buyer,  not- 

208 


CONTRACTS    OF    SALE    AND    TRANSPORTATION  §318 

withstanding  they  have  passed  out  of  his  possession,  and  have 
apparently  been  specifically  appropriated.  The  seller  may  do  this 
by  acts  manifesting  his  intention,  such  as  making  out  the  bill  of 
lading  for  the  consignment  in  his  own  name,  —  i.e.  instead  of 
billing  them  to  the  purchaser  at  their  destination,  he  consigns 
them  to  himself  or  to  his  agents  at  that  place.  Thus  the  title 
remains  in  him  in  spite  of  his  delivery  to  the  railroad.  When  a 
seller  makes  a  delivery  to  a  carrier  in  this  manner,  he  is  said  to  have 
reserved  the  jus  disponendi  (the  right  of  disposing  of  a  thing) . 

316.  Reserving  the  jus  disponendi  does,  in  fact,  vary  the  terms 
of  the  contract  of  sale  between  the  parties,  which,  it  would  appear, 
the  seller  should  strictly  carry  out.     (See  Appendix  Note  21  [6].) 
But  this  rule  has  grown  up  in  favor  of  the  manufacturer  or  seller 
to  protect  him  when  dealing  with  unscrupulous  or  financially 
irresponsible  persons.     Thus  the  right  is  a  very  valuable  one  for 
the  manufacturing  and  selling  classes,  protection  of  whose  interests 
means  protection  to  the  whole  commercial  community.     It  will 
be  seen  also  that  this  is  substantially  the  status  of  a  C.  O.  D.  trans- 
action, which  is  generally  upon  a  smaller  scale,  merely.     But  the 
carrier  may  withhold  possession  of  the  property  from  the  buyer 
until  payment  of  the  purchase  price  ("  seller's  lien  "),  and  for  this 
the  buyer  has  no  redress,  in  a  suit  for  possession  of  the  goods. 

317.  STOPPAGE  IN  TRANSIT!!.  —  There  is  another  right 
which  has  grown  up  to  protect  the  seller,  similar  in  its  effect  to 
reserving  the  jus  disponendi  (§  315)   though  accomplished  in  a 
different  fashion.     It  is  called  the  "  right  of  stoppage  in  transitu" 
and  is  that  right  which  an  unpaid  vendor  has,  when  selling  goods 
on  credit,  to  resume  possession  of  them  while  they  are  in  course  of 
transit,  and  before  they  have  reached  the  buyer,  —  the  right  to 
be  exercised  only  in  case  the  buyer  has  become  insolvent  or  bank- 
rupt, which  fact  comes  to  the  seller's  knowledge  after  he  has 
shipped  the  goods. 

This  is  a  valuable  right,  since,  if  it  is  not  exercised  in  such  a  case,  the 
goods  go  into  the  general  assets  of  the  insolvent  buyer  to  the  enrichment  of 
his  other  creditors.  The  seller,  becoming  thereby  a  creditor  himself,  is  only 
eligible  to  receive  the  same  proportion  of  his  claim  as  any  other  creditor,  so 
that  the  net  proceeds  of  his  sale  may,  perhaps,  be  only  30  cents  on  the  dollar. 

318.  How  Exercised.  — The  seller  exercises  the  right  of  stop- 
page  by  taking  possession  of  the  goods  himself,  or  by  an  agent,  or 
by  giving  seasonable  notice  of  his  claim  to  the  carrier ;  or  to  some 
T>ther  person  who  is  in  actual  possession  of  the  goods,  such  as  the 

209 


§319  CONTRACTS 

master  of  a  ship,  or  a  freight  agent.  The  order  of  inteiception 
must  be  expressed  in  clear  and  unequivocal  terms.  When  so 
expressed,  the  carrier  has  no  discretion  in  the  matter,  but  must 
obey  the  order  of  the  seller.  If  any  mistakes  are  made,  giving 
rise  to  claims  for  damages,  the  seller  is  answerable  for  them.  But 
if  in  spite  of  the  seller's  orders,  the  carrier  proceeds  to  deliver  the 
goods,  the  seller's  rights  are  not  affected. 

A,  in  Cleveland,  ships  goods  to  B  in  Philadelphia.  After  their  arrival 
there,  A  notifies  the  railroad  not  to  deliver  them  to  B.  Would  the  carrier 
be  liable  in  case  he  made  delivery?  It  is  held  that  he  would  be  liable.  But 
if  there  had  been  an  agreement  between  carrier  and  consignee  whereby  carrier 
was  to  hold  possession  as  consignee's  agent,  then  the  carrier  would  not  be 
liable  for  delivering,  since  the  transit  would  have  ceased. 

Again  suppose  A,  who  is  the  seller,  consigns  goods  to  B  and  sends  him 
the  bill  of  lading.  B  indorses  the  bill  to  C,  to  secure  an  advance  of  money 
made  by  C  to  him,  and  then  B  becomes  insolvent.  Can  A  stop  the  goods 
in  transitu?  In  such  cases  it  is  held  that  the  seller's  right  to  be  paid  should 
be  protected  in  so  far  as  the  interests  of  a  bona  fide  indorsee  (as  C  was  in  this 
case)  are  not  prejudiced  thereby.  Thus,  it  is  held  that  A's  right  extends 
only  so  far  as  to  entitle  him  to  what  may  remain  of  the  proceeds,  after  C  has 
been  satisfied  for  his  advance. 

319.  Duration  of  Right. — When  we  consider  the  numerous 
ways  and  stages  by  which  merchandise  is  transmitted  about  the 
country,  it  appears  that  a  question  arising  in  a  variety  of  ways 
is:     How  long  does  this  right  of  stoppage  in  transitu  continue? 
The  rule  is  that  the  right  continues  from  the  time  the  goods  are 
delivered  to  a  carrier  by  land  or  water,  for  the  purpose  of  trans- 
mission to  the  buyer,  until  the  time  when :  — 

(1)  the  buyer,  or  his  agent,  takes  delivery  of  the  goods  from 
the  carrier,  either  before  or  after  their  arrival  at  the  appointed 
destination;  or 

(2)  after  the  goods  have  arrived  at  their  destination,  the 
carrier  notifies  the  buyer  that  he  is  holding  them  as  buyer's  bailee ; 
or 

(3)  the  carrier  wrongfully  refuses  to  deliver  the  goods  to  the 
buyer,  or 

(4)  the  seller  waives  his  right  of  stoppage. 

320.  A  complicated  set  of  facts  may  arise  when  it  will  be  difficult  to 
say  whether  the  right  of  stoppage  in  transitu  was  exercised  too  late,  or  not. 
As  one  authority  put  it:  "  Goods  are  deemed  to  be  in  transitu  not  only  while 
they  remain  in  possession  of  the  carrier,  whether  by  land  or  water,  though 
the  carrier  is  designated  by  the  buyer,  but  also  when  they  are  in  anv  place 
of  deposit  connected  with  the  transmission  and  delivery  of  them,  and  until 
they  arrive  into  the  actual  or  constructive  possession  of  the  consignee." 

"This  apparently  plain  rule  is  subject  to  a  variation  when  there  is  an 
interruption  of  the  transit,  such  as  delivery  of  the  goods  by  the  original 
carrier  to  a  warehouseman,  or  other  agent  of  the  buyer,  preparatory  to  for- 

210 


CONTRACTS  OF  SALE  AND  TRANSPORTATION       §322 

warding  them  through  a  connecting  carrier, — in  which  case  the  seller's  right 
is  defeated.  Whether  or  not  it  is  defeated  will  depend  upon  the  intention 
with  which  the  goods  were  delivered  to  this  intermediate  person;  if  he  took 
them  simply  as  a  forwarder  so  that  the  transit  could  be  properly  said  to  be  a 
continuous  one,  then  the  right  is  not  defeated;  but  if  he  took  them  as  the 
agent  of  the  buyer,  so  that  from  that  moment  the  buyer  was  in  constructive 
possession,  then  the  right  of  stoppage  subsequently  exercised  is  ineffectual. 

321.  Effect  of  Stoppage.  —  It  is  interesting  to  note  that  if  the 
right  of  stoppage  is  exercised  the  contract  of  sale  is  not  thereby 
rescinded,  but  the  seller's  lien  (§  322)  is  at  that  moment  revived. 
The  result  is  that  even  if  the  seller  has  received  part  payment  for 
the  goods,  and  has  exercised  his  right  of  stoppage,  yet  he  does  not 
have  to  refund  the  part  paid.     Instead,  it  is  his  privilege  to  resell 
the  goods.     Should  any  surplus  remain,  he  must  turn  it  over  to 
the  first  buyer,  to  whom  he  may  also  look,  should  the  sale  result  in 
a  deficit. 

As  already  indicated  (§  319)  this  right  of  stoppage  may  be 
defeated  by  the  carrier's  making  delivery  to  the  buyer  when  the 
goods  have  reached  their  destination ;  it  will  also  be  defeated  by 
the  insolvent  buyer's  indorsing  the  bill  of  lading  to  an  innocent 
and  bona  fide  purchaser,  this  being  one  of  those  rare  cases  where  a 
person  can  transmit  a  better  title  than  he  himself  possesses. 

322.  SELLER'S  LIEN  is  another  means  of  assuring  a  seller  of 
payment  for  goods.     Though  title  has  passed  to  the  buyer,  and  the 
goods  remain  in  the  seller's  possession,  he  is  not  obliged  to  sur- 
render custody  until  paid ;  he  is  said  to  have  a  lien  upon  the  goods 
for  the  purchase  price.     He  is  especially  justified  in  refusing  to 
deliver  if  he  hears  of  the  insolvency  of  the  buyer  before  receiving 
payment.     If  the  price  in  full  is  paid  or  tendered,  the  seller  is 
divested  of  his  lien. 

An  essential  point  to  be  noticed  here  is  that  lien  always  relates 
to  possession.  Hence  if  the  seller  parts  with  the  possession  he 
waives  his  lien  unless  it  is  expressly  agreed  otherwise.  In  general, 
a  lien  is  waived  by  the  vendor  when  he  sells  goods  on  credit,  or 
if  he  takes  a  bill  of  exchange  or  other  negotiable  instrument  in 
conditional  payment.  If  a  lien  has  been  waived,  it  may  later  be 
revived,  if  the  seller  remains  in  possession  until  the  expiration  of 
the  term  of  credit  given ;  or  when  the  negotiable  instrument  given 
in  payment  has  been  dishonored ;  or  when  the  buyer  becomes  in- 
solvent, even  though  the  term  of  credit  has  not  expired,  nor  the 
note  been  dishonored.  It  is  held,  furthermore,  that  delivery  of  a 
part  of  the  goods  will  not  destroy  the.  lien  unless  made  under  such 

211 


§  323  CONTRACTS 

circumstances  as  to  show  an  intention  to  do  so.  But  in  any 
event,  the  seller  will  lose  his  lien  when  he  unconditionally  delivers 
the  goods  to  the  buyer. 

323.  Other  Remedies  of  Unpaid  Seller.  —  When  the  property 
has  not  passed  and  the  buyer  refuses  to  accept  and  pay  for  the 
goods  when  offered,  the  seller's  only  remedy  is  an  action  of  damages 
for  non-performance  of  the  contract  of  sale,  —  i.e.  non-acceptance. 
His  loss  is  in  the  failure  to  dispose  of  the  goods,  but  since  they 
remain  in  his  possession,  his  damages  may  not  be  great,  and  he 
may,  of  course,  resell  to  some  one  else. 

If  the  goods  are  already  in  the  possession  of  the  buyer,  though 
title  has  not  passed,  the  seller  may  have  an  action  of  replevin  to 
regain  possession  of  them,  or  a  tort  action  of  conversion,  where  the 
damages  will  be  the  value  of  the  goods  at  the  time  the  seller  re- 
linquished possession  of  them.  In  the  case  of  the  buyer's  refusal 
to  accept  the  goods,  no  special  tender  of  them  is  necessary,  though 
the  plaintiff  must  prove  that  he  was  ready  and  willing  to  perform 
his  part  of  the  contract.  But  a  mere  notice  that  the  seller  is  ready 
to  deliver  is  not  regarded  as  sufficient  proof  of  the  tender. 

The  general  rule  in  the  United  States  is  that  upon  refusal  of  the  buyer 
to  accept,  the  seller  may  sue  for  the  whole  purchase  price,  notwithstanding 
the  seller  retains  possession  of  the  goods.  In  the  alternate  case  where  the 
title  has  passed,  the  buyer's  refusal  to  pay,  after  having  been  put  in  possession, 
does  not  enable  the  seller  to  rescind  the  contract.  We  have  already  discussed 
the  remedies  which  may  be  had  against  the  goods;  but  in  this  case  his  only 
recourse  is  a  personal  action  for  the  price  against  the  buyer. 

324.  REMEDIES  of  the  BUYER.  —  So  far  we  have  been 
discussing  the  rights  and  remedies  of  the  seller.     Obviously  there 
must  be  another  equally  important   class  of  persons;  namely, 
buyers.     Perhaps  the  most  common  case  to  give  trouble  is  where 
the  seller  fails  to  deliver  the  goods  when  the  terms  of  the  contract 
entitle  the  buyer  to  possession. 

The  breach  is  on  the  part  of  the  seller,  as  he  fails  to  transfer 
the  title  or  deliver  the  goods,  but  the  purchaser's  only  right  is  an 
action  of  damages  for  failure  to  deliver.  If  the  title  has  passed, 
the  buyer  may  either  sue  for  damages  for  non-delivery,  or  maintain 
a  tort  action  called  trover,  and  secure  damages  for  being  deprived 
of  possession  of  the  goods. 

Suppose  the  contract  is  for  goods  upon  future  delivery,  and  before  that 
date,  the  price  having  risen,  the  seller  wishes  to  back  out  of  the  bargain. 
In  this  case  the  buyer  can  recover  as  damages  the  difference  between  the 
contract  price  and  the  higher  market  price.  This  will  put  him  substantially 
where  he  was  in  the  first  place,  since  with  the  amount  he  agreed  to  pay  the 

212 


CONTRACTS    OF    SALE    AND    TRANSPORTATION  §328 

seller  plus  the  amount  he  recovers  as  damages  he  can  then  go  into  the  market 
and  supply  himself  as  well  as  he  could  have  done  in  the  first  place. 

325.  If  no  time  was  fixed  for  delivery,  the  buyer  should  de- 
mand the  goods  before  bringing  suit ;  as  otherwise  his  trouble  may 
be  wasted  by  the  seller's  subsequent  offer  to  deliver.     Having 
demanded  the  goods  the  buyer  has  a  tort  action  for  conversion  (or 
trover)  of  goods  rightfully  belonging  to  him,  in  addition  to  the  fore- 
going damages  for  non-delivery. 

326.  ILLEGALITY  and  FRAUD.  —  When  a  sale  is  tainted 
with  illegality  it  is  void.     Many  sales  are  made  illegal  by  statute, 
as  sales  of  liquor  without  a  license,  of  merchandise  on  Sunday,  etc. 
Other  are  illegal  at  common  law,  as  sales  of  articles  for  the  further- 
ance of  some  purpose  contrary  to  good  morals,  or  in  violence  of 
public  decency,  as  the  selling  of  obscene  books,  or  instruments 
for  committing  crime,  sales  of  goods  to  the  public  enemy,  sales  of 
public  offices,  sales  of  law  suits,  of  lottery  tickets,  etc.     These  will 
infrequently  concern  the  engineer,  so  the  principal  discussion  will 
relate  to  sales  void  for  fraud,  a  highly  important  element  which 
may  enter  into  almost  any  business  transaction. 

327.  Remedies  of  Defrauded  Party.  —  When  a  person  has  been 
induced  to  enter  a  contract  by  the  fraud  of  the  other  party,  he 
has  various  options :  — 

(a)  of  affirming  the  contract,  and  suing  in  a  tort  action  of 
deceit ;  or 

(b)  If  he  is  sued  for  the  price,  he  may  set  up  the  fraud  in  re- 
duction of  the  same,  as  e.g.  showing  that  the  thing  was  misrepre- 
sented to  him  and  therefore  not  worth  the  agreed  price ;  or 

(c)  he  may  rescind  the  contract  within  a  reasonable  time  after 
discovery  of  the  fraud,  unless  in  the  meantime  the  rights  of  other 
persons  have  intervened,  and  set  up  this  rescission  when  sued  for 
the  price. 

If  the  buyer  is  defrauded,  he  may  recover  the  price,  if  it  has 
been  paid ;  and  if  it  is  the  seller,  and  he  has  delivered  the  goods, 
he  may  maintain  an  appropriate  action  for  their  possession. 

328.  Fraud  may  be  practised  upon  the  buyer,  or  upon  the 
seller,  or  by  both  conjointly  to  execute  a  fraud  upon  creditors. 
Each  will  be  treated  briefly.     As  to  the  BUYER,  the  rule  caveat 
emptor  (let  the  buyer  beware)  is  applied.     It  means  that  before 
making  a  purchase  it  is  the  buyer's  duty  to  assure  himself  that 
the  goods  are  what  they  are  represented  to  be.     He  must  have  his 

213 


§329  CONTRACTS 

eyes  open  and  cannot  wait  for  the  seller  to  point  out  defects  in  the 
article.  If  the  seller  does  not  point  them  out  yet  the  buyer  cannot 
necessarily  claim  afterwards  that  he  has  been  deceived.  If  dis- 
satisfied, or  suspicious,  he  may  demand  a  warranty. 

If  both  parties  are  ignorant  of  a  defect,  and  in  fact  no  deceit  is  practised 
on  the  buyer,  it  has  been  held  that  caveat  emptor  applies  equally  well.  In 
Massachusetts  it  is  held,  however,  that  where  the  defect  could  have  been 
discovered  upon  a  careful  examination  by  the  purchaser,  he  has  no  redress 
if  he  discovers  it  subsequently,  unless  the  seller  is  manufacturer  of  the  goods. 
This  principle  is  embodied  in  the  doctrine  covering  "  latent  defects,"  upon 
which  there  are  numberless  cases. 

329.  Technical  Elements  of  Fraud.  —  In  an  action  for  fraud 
or  deceit,  it  should  be  remembered  that  there  are  five  points  or 
technical  "  elements  "  which  must  be  proved  in  order  to  maintain 
the  case.     They  are :  — 

(1)    The  defendent  must  have  made  a  false  representation  of 
material  facts ; 

(2)  with  knowledge  of  its  falsity ; 

(3)  with  intent  that  it  should  be  acted  upon. 

(4)  It  must  have  been  believed  to  be  true  by  the  plaintiff ;  and 

(5)  have  been  acted  upon  by  him  to  his  damage. 

Thus,  it  is  not  every  mean  imposition  or  petty  swindle  in 
business  dealings  which  will  be  righted  by  a  court  of  law.  It  is 
often  extremely  difficult  to  offer  legal  proof  (proof  according  to  the 
established  rules  of  evidence),  of  all  the  five  elements  required. 
While  all  shades  of  fraud  are  commonly  practised,  the  line  is  drawn 
as  indicated.  Observance  of  these  rules  may  work  hardship  in 
individual  cases,  but  they  are  wholesome  rules  in  the  long  run 
since  trifling  disputes  are  thus  kept  out  of  court. 

It  is  an  established  principle  that  if  the  seller  makes  an  active 
effort  to  deceive,  or  conceals  something  which  the  buyer  was 
entitled  to  know,  this  enables  the  buyer  to  avoid  the  contract.  In 
Massachusetts  it  is  necessary  to  show  the  guilty  intention,  for  if 
the  seller  acted  in  good  faith,  the  sale  will  not  be  avoided.  This 
does  not  mean,  however,  that  pure  falsehoods,  or  reckless  and 
careless  statements  of  beliefs  made  as  though  they  were  facts 
within  the  vendor's  knowledge  (when  he  did  not  know),  can  be 
excused  on  the  basis  of  an  honest  intention. 

330.  Representation  and  Warranty  Distinguished.  —  It  should 
be  observed,  in  passing,  that  there  is  a  clear  distinction  in  degree 
between  a  representation  and  a  warranty.     A  representation  is  any 
act  or  statement  falling  short  of  a  warranty,  but  which  would  con- 

214 


CONTRACTS  OF  SALE  AND  TRANSPORTATION       §332 

vey  to  a  man  of  ordinary  intelligence  a  clear  impression  of  fact 
sufficient  to  govern  his  conduct.  A  warranty  is  essentially  and 
always  a  part  of  the  contract,  while  a  representation  is  at  best  but 
an  inducement  to  enter  upon  a  contract.  This  matter  shades  off 
still  further  into  what  is  known  as  "  dealer's  talk,"  meaning  that 
mere  general  commendation  of  the  article  by  the  seller  does  not 
amount  to  a  representation  unless  it  is  a  positive  statement  as  to 
what  a  thing  cost,  what  has  been  offered  for  it,  what  it  has  sold  f or, 
etc. 

331.  Fraud  on  Vendor  usually  arises  when  the  buyer  has  mis- 
represented his  financial  standing,  and  when  he  knows  that  he  is 
actually  or  practically  insolvent  at  the  time  he  makes  the  purchase. 
Here  the  seller  can  usually  avoid  the  sale  for  fraud.     But  the  line 
seems  to  be  drawn  between  this  point  and  the  situation  where  the 
buyer  knows  that  very  likely  he  will  be  unable  to  pay,  yet  has  no 
positive  intention  of  not  paying,  and  does  not  by  positive  acts  or 
statements  tending  to  hide  his  financial  condition  represent  that 
he  is  responsible.     It  is  held  that  these  latter  circumstances  will 
not  of  themselves  avoid  the  sale.     Very  close  questions  might  thus 
arise,  for  it  is  certain  that  with  knowledge  of  these  facts  the  seller 
would  not  have  parted  with  his  property. 

Evidence  of  Fraud.  —  It  should  also  be  noticed  that  what  the 
intention  of  the  buyer  was  in  a  given  transaction  may  be  inferred 
from  his  conduct  and  circumstances  during  its  consummation. 
This  means  that  as  it  is  extremely  difficult,  and  often  impossible 
to  tell  what  really  was  in  a  person's  mind  (or  rather,  to  prove  it  in 
the  accepted  legal  fashion),  extrinsic  evidence  as  to  what  the 
buyer  did  or  said,  or  of  the  attendant  circumstances  may  be  intro- 
duced by  the  testimony  of  ordinary  witnesses.  From  such  testi- 
mony the  jury  will  be  allowed  to  infer  that  such  and  such  was  in 
the  buyer's  mind  and  to  find  that  it  was  so  "  in  fact'1  It  is  plain 
that  otherwise  vast  frauds  could  go  unpunished. 

See  also  second  illustration  in  §  334. 

In  a  case  where  a  buyer  represented  that  a  competitor  of  the  vendor's 
had  underbid  him,  and  thus  induced  a  sale  at  the  lower  figure,  the  statement 
proving  to  be  false,  the  sale  was  avoided  as  fraudulent. 

332.  Sales  to  Defraud  Creditors.  —  Sales  made  with  intent  on 
the  part  of  buyer  and  seller  to  delay,  hinder,  or  defraud  creditors 
of  the  seller  are  clearly  and  utterly  fraudulent.     They  may  be 
avoided  by  such  creditors,  unless  another  person  has  in  the  mean- 

215 


§  333  CONTRACTS 

time  acquired  an  interest  in  the  thing  sold,  while  acting  in  good 
faith  and  purchasing  for  value.  This  rule  may  apply  in  respect 
to  creditors  existing  at  the  time  of  the  sale  and  also  to  those  sub- 
sequently becoming  creditors.  Thus,  in  case  of  the  seller's  bank- 
ruptcy, sales  made  within  a  period  of  four  months  preceding  the 
date  of  bankruptcy  are  voidable  for  fraud.  Whether  or  not  fraud 
exists  in  a  given  case  is  a  matter  of  fact  for  a  jury. 

333.  Interesting   and   complicated   cases   arise  in   this   con- 
nection, as  for  instance  where  the  seller  retains  possession  of  the 
goods,  which  fact  is  in  many  jurisdictions  a  fraud  in  itself  where 
the  rights  of  creditors  intervene ;  in  others  it  is  simply  a  presump- 
tion of  fraud  which  may  be  overcome  by  proof.     As  a  leading 
authority  puts  it : 

"  The  object  of  legislation  on  this  subject  was  to  put  an  end  to  frauds 
frequently  committed  by  secret  bills  of  sale  whereby  persons  were  enabled 
to  keep  up  the  appearance  of  persons  in  good  circumstances,  possessed  of 
property,  while  the  holders  of  such  bills  of  sale  had  the  power  of  taking  posses- 
sion to  the  exclusion  of  the  rest  of  the  creditors. "  It  is  because  of  this  principle 
that  chattel-mortgages  are  required  to  be  registered  in  the  appropriate  public 
place,  "  with  a  view  to  affording  creditors  and  parties  interested  a  true  idea 
of  the  position  in  life  of  the  ostensible  possessor  of  the  goods,  "  etc. 

334.  Absolute  good  faith  plays  a  leading  part  in  these  cases, 
and  so  does  delivery.     There  must  be  a  fraudulent  intention,  and  if 
creditors  seek  to  set  the  transaction  aside  they  must  show  the 
guilty  intention  on  the  part  of  both  the  parties. 

Thus  in  Massachusetts  it  is  held  that  where  a  person  has  several  creditors 
all  of  whose  claims  he  can  not  meet,  he  may  in  good  faith  pay  one  in  full, 
though  the  rest  get  nothing.  Plainly  this  is  a  very  critical  transaction. 

A  sells  goods  to  B  by  bill  of  sale,  but  retains  possession  of  the  goods.  A 
creditor  of  A's  gets  a  judgment  upon  a  suit  against  him,  and  attaches  these 
goods  which  A  is  holding.  Can  B  claim  goods?  Massachusetts  and  many 
of  the  States  hold  that  this  would  constitute  a  prima  facie  case  of  fraud  on 
part  of  A. 

335.  WARRANTY.  —  A  warranty  is  an  undertaking  made 
either  expressly  or  impliedly  by  the  seller  that  certain  facts  con- 
cerning the  article  are  or  will  be  true.     He  may  say,  "  I  warrant 
the  goods/'  or  this  may  be  implied  from  his  actions.     It  is  stronger 
than  a  mere  representation,  since  by  it  the  vendor  warrants  or 
undertakes  absolutely  that  the  article  sold  possesses  certain  at- 
tributes.    Should  the  article  fail  to  possess  them,  the  buyer  can  sue 
for  breach  of  warranty.     The  action  on  the  warranty  will  be  col-, 
lateral  (in  addition)  to  the  ordinary  action  on  the  contract  of  sale, 
this  secondary  part  of  the  agreement  being  a  part  of  the  original 
contract  by  consent  of  the  parties.     It  should  be  noticed  that  the 

216 


CONTRACTS  OF  SALE  AND  TRANSPORTATION       §338 

warranty  is  not  a  necessary  part  of  the  contract,  and  that  there 
is  no  less  a  sale  for  want  of  it.  A  mere  representation,  though 
fraudulently  made,  does  not  give  rise  to  an  action  of  warranty,  but 
may  lead  to  an  action  for  deceit,  as  already  noted. 

336.  An  express  warranty  must  be  given  at  the  time  of  the  sale. 
With  regard  to  quality,  no  warranty  is  implied  from  the  mere  fact 
of  sale,  since  caveat  emptor  (see  §  328)  is  the  general  rule.     But 
there  is  an  implied  warranty  of  title  by  the  act  of  selling,  whereby 
the  seller  warrants  his  ability  to  sell.     A  general  warranty,  as 
that  the  goods  are  sound  and  perfect  in  every  way,  does  not  ex- 
tend to  facts  known  to  both  parties  at  the  time  of  sale,  or  such  as 
would  have  been  revealed  by  the  most  cursory  inspection.     But 
if  the  defect  in  the  article  could  only  have  been  discovered  by  the 
exercise  of  peculiar  skill  or  training,  the  purchaser  may  rely  upon 
a  general  warranty,  even  though  he  himself  possesses  that  skill. 

There  is  a  difference  of  opinion  among  the  courts  upon  this  point,  some 
holding  in  effect  that  one  has  a  legal  right  to  expect  others  will  deal  with  him 
in  good  faith,  or  to  assume  to  a  certain  extent,  at  least,  that  the  other  man 
will  not  lie  to  him.  This,  of  course,  robs  the  rule  caveat  emptor  of  some  of  its 
rigor. 

337.  Implied    Warranty.  —  Caveat    emptor    is    considered    to 
apply  when  an  article  is  inspected  by  the  buyer  at  the  time  of 
making  the  purchase,  i.e.  if  there  is  a  warranty  it  must  be  an 
express  one.     When  a  manufacturer  undertakes  to  fill  an  order 
for  his  product  he  impliedly  warrants  that  the  goods  furnished 
will  be  suitable  for  the  purpose  for  which  the  buyer  designed  them. 
To  the  same  effect,  a  bargain  and  sale  of  a  thing  answering  a  par- 
ticular description  implies  a  warranty  that  it  does  so  answer.     A 
New  York  case  seems  to  go  still  further,  saying  that  such  goods 
must  be  marketable  or  merchantable  and  of  such  quality  that  they 
could  be  disposed  of,  if  need  be,  to  persons  dealing  in  such  goods. 
Where  goods  are  sold  by  description,  or  for  a  particular  use, 
caveat  emptor  does  not  apply,  since  the  burden  of  inspection,  to 
see  if  they  are  fit,  is  upon  the  seller. 

A,  who  was  the  proprietor  of  several  ice-houses  in  New  Hampshire,  sold 
10  carloads  of  ice  to  M,,  a  Boston  dealer.  A  did  not  expressly  warrant  the 
quality  of  the  ice,  which  was  to  be  shipped  whenever  M's  trade  called  for  it. 
Upon  arrival,  the  ice  was  found  to  be  poor  and  not  salable.  A  sued  for  the 
purchase  price.  Could  he  win? 

338.  SALES  by  SAMPLE.  —  In  this  case  it  is  necessary  that 
the  parties  should  have  reference  to  the  same  sample  in  order  that 
there  may  be  mutuality  in  the  contract.     When  one  sells  by 

217 


§  339  CONTRACTS 

sample  or  undertakes  to  supply  goods  in  accordance  with  a  sample 
submitted  by  the  customer,  he  tacitly  agrees  that  the  bulk  of  the 
goods  shall  be  equal  in  quality  to  the  sample.  (Sec.  16  of  Sales 
Act  adds :  There  is  an  implied  warranty  that  the  buyer  shall  have 
a  reasonable  opportunity  of  comparing  the  bulk  with  the  sample, 
unless  it  is  a  C.  O.  D.  transaction.)  In  Massachusetts,  when  exist- 
ing goods  are  sold  by  sample  it  is  only  necessary  that  the  article 
supplied  in  bulk  should  correspond  with  the  sample,  the  seller 
not  warranting  either  the  sample  or  the  whole  against  latent 
defects. 

339.  DELIVERY.  —  Unless    specified    otherwise,    the    pre- 
sumption is  in  favor  of  a  cash  sale,  and  that  delivering  the  goods 
and  paying  the  price  are  concurrent  conditions.     (See  §§  367-8.) 
Delivery  may  be  of  three  sorts,  actual,  constructive  (see  §  304),  and 
"  symbolical  "  where  the  possession  is  transferred  by  passing  some 
symbol  of  the  goods,  such  as  the  bill  of  lading. 

When  the  delivery  is  of  a  greater  amount  of  goods  than  was 
contracted  for,  or  the  goods  are  sent  mixed  with  others,  the  buyer 
may  reject  the  amount  in  excess  of  the  contract ;  or  if  he  must  incur 
trouble  and  expense  in  separating  them,  he  may  reject  the  whole 
lot  upon  the  ground  that  the  terms  of  the  contract  have  not  been 
met.  If  a  less  quantity  is  delivered,  he  may  also  reiect  them  as 
before ;  or  he  may  accept,  when  it  is  generally  held  that  he  must  pay 
at  the  contract  price  for  those  received. 

When  under  the  contract  of  sale  the  seller  is  authorized  or 
required  to  send  the  goods  to  the  buyer,  delivery  to  a  CARRIER 
for  that  purpose  is  prima  facie  deemed  a  delivery  to  the  buyer,  and 
passes  the  title,  the  carrier  being  deemed  to  be  the  agent  of  the 
buyer.  This  will  be  especially  true  if  the  buyer  has  designated 
which  carrier  is  to  convey  them  (where  there  are  several),  or  where 
some  one  employed  by  the  buyer  (as  a  teamster)  receives  them. 

340.  Unless  it  is  otherwise  agreed,  the  buyer  is  entitled  to  a 
reasonable  time  and  opportunity  TO  EXAMINE  the  goods  to 
ascertain  whether  they  are  in  conformity  to  the  contract ;  and  an 
offer  to  deliver,  accompanied  with  a  refusal  to  allow  such  examina- 
tion, is  not  a  good  delivery. 

If  the  contract  is  silent  upon  it  the  vendor  is  not  obliged  to 
send  the  goods  to  the  buyer,  but  it  is  enough  if  he  holds  himself  in 
readiness  to  deliver  them  when  called  for.  Under  such  conditions, 
if  nothing  more  remains  to  be  done  by  the  seller,  the  title  has 

218 


CONTRACTS  OF  SALE  AND  TRANSPORTATION       §342 

passed,  and  the  goods  are  at  the  risk  of  the  buyer  (compare  with 
§  301). 

341.  PAYMENT  may  be  arranged  in  three  ways:  by  paying 
cash ;  by  giving  a  promissory  note,  check,  or  other  negotiable  instru- 
ment; and  by  giving  credit.  If  payment  is  made  by  check  it  is 
conditional  upon  the  buyer  having  funds  in  the  bank;  if  he  has 
none,  then  it  is  only  the  semblance  of  a  payment.  The  person 
taking  it  is  bound  to  present  the  check  in  due  season  at  the  bank 
(see  §  383),  and  should  he  fail  to  do  so,  and  the  bank  becomes 
insolvent,  he  is  merely  a  creditor  of  the  bank,  but  has  no  right 
against  the  drawer  of  the  check. 

With  reference  to  the  effect  of  a  promissory  note  taken  in  payment, 
there  is  a  difference  of  opinion  among  the  courts.  Some  hold  that  it  is  absolute 
payment,  and  if  not  paid  when  due,  suit  must  be  brought  on  the  note,  but 
the  original  contract  of  sale  has  been  wiped  out  by  it.  Others  say  that  this 
is  but  a  conditional  payment,  and  upon  the  note's  being  dishonored  the  seller 
still  has  his  action  for  the  goods,  irrespective  of  the  contract  in  the  note. 

When  the  sale  is  on  credit,  the  title  to  the  goods  vests  immedi- 
ately in  the  buyer,  and  the  seller  is  obliged  to  wait  for  his  money 
by  mutual  agreement.  (See  §  322  in  this  connection.) 

CARRIERS 

A  subject  intimately  related  to  sales  is  that  branch  of  bail- 
ments (see  §  294)  which  pertains  to  the  duties  and  liabilities  of 
common  carriers,  and  the  legal  rights  of  the  shipper,  since  carriage 
of  the  chattels  is  a  part  of  almost  every  mercantile  transaction. 
The  engineer  is  bound  to  be  largely  interested  in  the  transportation 
of  both  bulky  and  heavy  articles  over  great  distances,  as  con- 
tractor's plant,  machinery,  lumber,  coal,  cement,  stone,  and 
structural  steel.  Hence  the  following  brief  treatment. 

342.  COMMON  CARRIERS  and  THEIR  PRIVILEGES.—  A 
common  carrier  is  one  who  undertakes  to  carry  goods  for  hire  for 
whomsoever  may  employ  him.  This  embraces  draymen,  express- 
men, railroad,  express,  fast  freight,  and  pipe  line  companies,  on 
land ;  and  bargemen,  ferrymen,  and  steamboat  companies  on  the 
water.  (Steam  tow-boats,  sleeping-car  companies,  telegraph, 
telephone,  and  private  bridge  companies  are  not  common  ear- 
ners.) The  liabilities  of  such  carriers  begin  when  the  goods  have 
been  delivered  to  them  or  to  their  proper  agents  for  the  purpose  of 
immediate  transportation,  and  are  accepted  by  them  for  that  pur- 
pose. But  they  are  not  obliged  to  accept  goods  of  a  kind  which 

219 


§  343  CONTRACTS 

they  do  not  profess  to  carry,  nor  to  undertake  to  carry  by  othei 
than  the  ordinary  means  and  route.  Neither  are  they  obliged  to 
accept  goods  when  their  facilities  are  insufficient  to  handle  them, 
nor  in  the  absence  of  statute  on  the  matter  are  they  obliged  abso- 
lutely to  provide  such  facilities  (see  below) .  They  are  not  obliged 
to  accept  dangerous  or  suspicious  goods ;  nor  goods  unfit  for  ship- 
ping; nor  goods  offered  them  by  one  not  their  owner.  They  are 
not  obliged  to  carry  goods  unless  the  transportation  charges  are 
paid  in  advance.  Acceptance  of  the  goods  by  the  carrier  may 
be  presumed  when  they  are  left  in  a  usual  place  in  accordance 
with  the  contract  or  custom  of  the  carrier  to  so  receive  them.  If 
they  are  deposited  with  the  carier  for  futiire  transportation,  the 
carrier's  duties  toward  the  goods  will  be  that  of  a  warehouseman, 
merely,  and  his  liabilities  as  a  carrier  will  not  arise  until  the  con- 
signor has  authorized  immediate  transportation. 

343.  FACILITIES.  —  The  rule  is  that  a  carrier  is  bound  to 
provide  sufficient  facilities  and  means  for  transportation  for  all 
freight  which  it  is  reasonable  to  expect  will  be  offered ;  but  he  is 
not  bound  to  provide  in  advance  for  extraordinary  occasions,  nor 
for  an  unusual  influx  of  business,  which  in  the  view  of  an  ordinarily 
prudent  and  diligent  business  management  could  not  reasonably 
have  been  expected.     It  has  been  said  that  the  amount  of  business 
ordinarily  done  by  a  railroad  company  is  the  only  proper  measure 
of  its  obligation  to  furnish  transportation.     Hence  if  the  pressure 
of  traffic  is  such  as  the  carrier  might  have  reasonably  anticipated 
and  provided  for,  he  will  not  be  released  from  liability  to  receive 
goods  on  the  ground  of  lack  of  convenience.     In  some  States 
statutes  provide  a  penalty  against  any  railroad  for  failure  to  pro- 
vide cars  upon  a  written  application  made  by  the  shipper. 

344.  DISCRIMINATION.  —  A  Federal  Statute  prohibits  dis- 
crimination in  favor  of  or  against  any  shipper,  either  in  respect  to 
charges  or  facilities.     But.  this  leads  to  a  discussion  of  the  Inter- 
state Commerce  Act  and  its  allied  constitutional  entanglements 
which  is  foreign  to  our  present  purpose.     To  follow  the  spirit  of 
the  law,  the  carrier  should  ship  in  the  order  of  precedence  in  which 
the  goods  were  received,  save  that  he  may  make  an  exception  in 
the  case  of  perishable  goods ;  but  it  is  held  that  he  has  no  right  to 
accept  perishable  goods  for  prompt  shipment  when  it  will  interfere 
with  the  proper  shipment  of  goods  already  on  hand. 

345.  CARRIER'S  LIABILITY  and  "  EXCEPTED  "  RISKS. 

220 


CONTRACTS  OF  SALE  AND  TRANSPORTATION       §348 

—The  carrier  is  held  to  be  an  insurer  of  the  goods  against  all  losses 
save  those  occasioned  by  "  act  of  God";  by  the  public  enemy; 
by  the  fault  of  the  shipper ;  loss  by  reason  of  inherent  qualities  of 
the  thing  shipped,  as  in  the  case  of  extra-perishable  articles ;  or  if 
the  loss  is  occasioned  by  the  exercise  of  public  authority. 

Loss  by  "  act  of  God,"  is  one  occasioned  by  an  irresistible  disaster  result- 
ing directly  from  natural  causes  and  in  no  sense  attributable  to  human  agencies, 
such  as  losses  by  reason  of  lightning,  tempest,  earthquake,  flood,  and  sudden 
death;  while  loss  by  fire  not  caused  by  lightning,  nor  spontaneous  combustion, 
and  loss  by  collision  or  explosion  would  not  be  so  included.  Even  when  loss 
is  caused  by  one  of  the  "  excepted  "  perils,  the  carrier  is  liable  if  such  loss 
could  have  been  avoided  by  the  exercise  of  ordinary  care  and  diligence. 

Under  the  "  Public  enemy  "  is  included  pirates  on  the  high  seas,  and 
bodies  of  men  existing  in  violation  of  law,  including  mobs,  and  bodies  of 
strikers  and  rioters.  Losses  caused  by  the  Confederate  forces  in  the  Civil 
War  were  all  considered  as  losses  due  to  the  public  enemy,  and  the  R.  R. 
companies  in  whose  possession  the  goods  were  when  destroyed,  were  not 
liable. 

346.  Where  the  fault  of  the  shipper  causes  the  loss,  plainly 
he  cannot  sue  the  carrier  for  the  results  of  his  own  negligence. 
The  carrier's  liability  begins  at  the  time  the  goods  are  delivered  to 
him  for  transportation  and  ends  when  they  are  delivered  to  the 
consignee  or  owner,  or  when  they  are  deposited  in  a  safe  ware- 
house,  after  there  has  been  a  reasonable  opportunity  for  the 
owner  or  consignee  to  remove  them. 

347.  The  carrier  may  by  contract  limit  his  liability  from  that 
of  an  insurer  of  the  goods  to  such  an  extent  that  he  will  be  bound 
only  to  ordinary  diligence ;  but  he  cannot  stipulate  against  negli- 
gence, fraud,  nor  misconduct  on  his  own  part,  nor  upon  that  of  his 
servants,  such  contracts  being  against  public  policy.     It  is  common 
and  proper  for  a  carrier  to  set  reasonable  limits  to  the  sum  for 
which  he  shall  be  held  responsible  in  case  of  loss;  and  he  may 
refuse  to  take  goods  of  greater  value  than  ordinary,  unless  a  higher 
rate  be  paid,  as  this  would  be  fraudulent  on  the  sender's  part.     He 
may  also  stipulate  that  he  will  not  be  liable  for  any  loss  unless  a 
claim  therefor  is  presented  within  a  reasonable  time. 

348.  DELIVERY  by  CARRIER.  —  The  general  rule  is  that 
carriers  are  bound  to  make  personal  delivery  to  the  consignee,  and 
their  liability  continues  until  such  time  as  they  have  done  so. 
The  necessities  of  modern  business  allow  this  delivery  to  approach 
the  constructive  (see  §§  339  and  304)  type.     Hence  if  a  carrier 
by  water  delivers  the  goods  upon  a  designated  or  customary  wharf 
and  gives  notice  to  the  buyer,  it  is  generally  held  to  be  enough  to 
relieve  the  carrier  from  further  liability.     As  to  railroads,  there  is 

221 


§  349  CONTRACTS 

a  difference  in  local  customs,  some  holding  that  the  liability  ceases 
when  the  goods  are  safely  removed  from  the  cars  and  placed  in 
storage ;  others  hold  that  in  addition  to  this;  notice  must  be  given 
to  the  owner  and  a  reasonable  time  must  have  elapsed  for  their 
removal  before  the  carrier's  liability  terminates.  Express  com- 
panies, and  teamsters  generally,  are  usually  bound  to  make  per- 
sonal delivery  to  the  consignee,  and  failing  to  deliver  to  the  right 
person,  the  carrier  becomes  liable  for  loss  or  damage  resulting 
from  such  wrongful  delivery. 

349.  The  carrier  will  be  excused  from  delivery  to  the  consignee 
when  the  goods  are  demanded  by  one  having  a  paramount  title; 
or  where  the  consignor  has  stopped  them  in  transitu  (see  §  317) ; 
or  where  the  carrier  has  lost  them  through  an  "  excepted  peril." 
(§  345.) 

If  a  BILL  of  LADING  has  been  issued,  delivery  must  be  made 
to  the  holder  of  it,  or  to  his  assignee;  if  the  carrier  delivers  to  a 
person  other  than  the  holder  of  such  bill,  he  will  be  liable  for 
wrongful  delivery,  even  though  he  delivers  to  the  consignee 
named.  This  will  be  especially  true  if  the  shipper  has  expressly 
directed  the  carrier  to  deliver  only  to  the  holder  of  such  bill  and 
the  carrier  does  deliver  without  requiring  its  production.  It  will 
be  seen  that  this  rule  prevents  great  frauds,  since  not  a  little 
business  is  done  upon  negotiable  bills  of  lading.  The  instrument 
passes  freely  from  hand  to  hand,  and  delivery  of  it  is  held  to  be 
symbolical  delivery  of  the  goods. 

350.  CONNECTING  CARRIERS.  —  The  duties  which  have 
been  mentioned  as  binding  upon  railroad  companies  also  extend 
to  goods  properly  tendered  them  by  connecting  lines.     One  carrier 
whose  line  connects  with  another  cannot  refuse  to  deliver  to,  or 
to  receive  goods  offered  by  such  line,  or  cars  of  that  line  carrying 
freight,  according  to  the  proper  and  usual  course  of  business. 
When  goods  are  to  be  sent  over  several  connecting  lines,  the  line 
upon  which  loss  occurs  is  held  to  be  liable  for  it,  and  the  receiving 
carrier  as  such  cannot  be  sued  for  the  loss.  ^  If  the  first  carrier 
finds  the  second  unable  to  take  the  goods  on  account  of  a  press 
of  business,  and  they  are  lost  or  destroyed  while  awaiting  transit, 
the  first  carrier  must  bear  the  loss.     This  is  because  so  far  as  the 
shipper  is  concerned,  the  goods  are  all  the  time  in  transit.     In 
America  the  receiving  company  is  held  to  be  the  agent  for  the 
other  companies,  while  in  England  it  is  just  the  opposite. 

222 


CONTRACTS  OF  SALE  AND  TRANSPORTATION       §353 

351.  CARRIER'S  LIEN  is  the  right  possessed  by  the  carrier 
by  which  he  may  refuse  to  deliver  goods  unless  his  charges  are 
paid.  Upon  refusal  of  payment  he  has  the  right  to  sell  the  goods 
for  the  charges,  pay  himself  from  the  receipts,  and  turn  the  balance 
over  to  whoever  seems  entitled  to  it.  As  appeared  under  "  Lien  " 
in  a  former  discussion  (see  §  322),  of  course  he  loses  his  lien  when 
he  parts  with  the  custody  of  the  goods.  It  is  generally  held  that 
lie  has  a  lien  for  his  freight  and  storage  charges  on  those  particular 
goods,  and  that  this  covers  all  proper  charges  throughout  the 
whole  of  a  continuous  transit  over  successive  lines. 

This  lien  does  not  extend  to  charges  arising  under  some  con- 
tract other  than  that  relating  to  the  specific  goods.  That  is,  it  is 
not  a  "  general  lien  "  —  running  against  any  and  all  of  the  goods 
that  are  or  may  come  into  the  possession  of  the  carrier,  —  for  out- 
standing charges  against  that  shipper.  And  it  is  held  that  the 
lien  does  not  attach  as  against  the  true  owner  when  the  goods  were 
delivered  for  transportation  by  a  wrongdoer.  It  is  plain  that  if 
it  were  otherwise,  much  injustice  might  be  done. 

A  railroad  cannot  have  a  lien  for  demurrage  charges,  or  for  the 
inconvenience  and  expense  which  it  may  suffer  by  reason  of  the 
consignee's  not  having  unloaded  the  goods  from  the  cars  within  a 
reasonable  time.  A  carrier  by  water  may  have  a  lien  for  salvage 
and  for  incidental  expenses ;  and  also  for  customs  duties  advanced 
upon  imported  goods. 

352.  In  Massachusetts  it  is  held  that  a  carrier's  lien  is  superior 
to  a  vendor's  right  of  stoppage  in  transitu.     The  consignor,  being 
the  vendor  of  the  goods,  must  pay  the  freight  in  order  to  secure  his 
right  of  stopping  the  goods,  but  this  superiority  of  lien  exists  only 
with  reference  to  the  particular  goods  whose  carriage  is  in  pro- 
gress, as  already  noted.     Also,  in  that  Commonwealth,  it  is  held 
that  the  carrier  may  hold  the  consignor  for  freight,  even  though 
he  knows  the  goods  have  been  sold  to  the  consignee ;  but  the  con- 
signee is  bound  to  pay  the  freight,  unless  it  is  otherwise  agreed. 
It  is  also  true  that  goods  once  delivered  to  a  (common)  carrier  can- 
not be  taken  away,  either  by  shipper  or  consignee,  without  paying 
freight  and  other  reasonable  charges. 

353.  CONCLUSION.  —  The  student  will  observe  that   the 
highly  interesting  and  practical  matter  of  carrying  persons  has  not 
been  touched  upon.     Texts  which  may  assist  the  student  or  en- 
gineer to  pursue  this  and  the  foregoing  matters  further,  are  Hutch- 
inson  on  Carriers ;  and  Schouler  on  Bailments.     Browne  and  Story 
are  other  authorities  on  the  same  subject. 

223 


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224 


QUESTIONS 

Questions  on  Chapter  VII 
SALES  and  CARRIERS 

1 .  Give  a  technical  definition  of  a  sale. 

2.  Distinguish    "  sale   "   from   "  bailment  ";   from   4-i  consign* 
went." 

3.  Explain  the  difference  between  executed  and  executory  sales. 

4.  What  is  the  Sales  Act?     Of  what  importance  to  us? 

5.  What  elements  and  formalities  are  required  in  sales? 

6.  Suppose  you  buy  stolen  goods.     Who  now  owns  them? 

7.  When  may  a  non-owner  pass  a  good  title? 

8.  What  is  the  rule  as  to  sale  of  goods  not  in  existence? 

9.  What  was  the  origin  of  the  Statute  of  Frauds?     Its  present 
importance? 

10.  What  is  the  point  of  the  seventeenth  section?     Discuss  the 
Statute  as  a  rule  of  evidence. 

11.  State  the  distinction  drawn  between  a  sale  and  a  contract 
for  work,  labor,  and  materials. 

12.  Narrate  concisely  the  carriage  case.     What  is  the  point? 

13.  What  is  the  relation  of  the  Statute  to  an  order  given  a  manu- 
facturer? 

14-    What  ivas  the  difference  between  a  common  law  sale  an^- 
one  made  after  the  Statute  was  enacted? 

16.  State  Rule   (1)  under  the  Statute.     Discuss  circumstances 
where  it  becomes  important. 

17.  What  kinds  of  delivery  are  there?     Explain  briefly. 

18.  Illustrate  one  case  of  "  constructive  "  delivery. 

19.  Recite  upon  "  binding  the  bargain" 

20.  What  are  the  requirements  for  the  "  memorandum  "? 

21.  What  is  the  effect  on  a  sale  of  non-compliance  with  the 
Statute  of  Frauds? 

22.  When  does  title  pass?     What  is  the  test? 

23.  Name  some  important  conditions  precedent  to  passage  of 
title. 

24.  Under  what  circumstances  does  title  pass  instantly  and 
in  the  present? 

25.  Recite  upon  the  case  where  something  remains  to  be  done 

26.  Distinguish  between  the  two  sorts  of  conditional  sales  treated 
in  the  text. 

27.  Recite  on  passage  of  title  in  sales  on  approval. 

225 


CONTRACTS 

28.  "  Specific    appropriation" — what    is    meant?    When 
portant? 

29.  What  about  title  to  "  unascertained  "  goods? 

30.  Recite  upon  "  appropriation."     Who  makes  it? 
81.    What  has  appropriation  to  do  with  loss  of  the  goods? 

32.  Why  have  the  foregoing  rules  about  passing  title  been  neces- 
cary? 

83.    When  goods  are  manufactured  to  order  when  does  title  pass? 

34.  What  relation  does  delivery  to  a  carrier  have  to  title  passing? 

35.  Explain  carefully  "  jus  disponendi."     For  whose  benefit  is 
the  doctrine  evoked? 

36.  Does  reserving  the  "  jus  dispondendi  "  vary  the  contract?    If 
so,  how?     Why  permitted? 

37.  What  is  meant  by  "  seller's  lien  "? 

38.  Explain  stoppage  "  in  transitu."     Who  does  it?     When? 

39.  What  is  the  practical  advantage  of  the  right  of  stoppage? 
Whom  does  it  benefit? 

40.  How  is  right  of  stoppage  exercised? 

41.  Suppose  the  carrier  delivers  in  spite  of  orders  to  stop  in 
transit, — does  the  seller  lose?    Suppose  he  delivers  before  getting 
word  from  seller? 

42.  Name  two  ways,  or  circumstances,  whereby  the  goods  are 
said  to  be  at  the  end  of  their  transit. 

43.  Suppose  goods  have  been  removed  from  cars  and  stored  in 
freight  depot,  but  buyer  has  not  been  notified  of  their  arrival.     Are 
they  still  in  transit? 

44'  Suppose  you  ship  goods  over  the  X.  R.  R.  via  M.  &  N. 
R.  R.  The  latter  received  the  goods  from  you,  and  has  delivered 
same  to  X.  as  its  connecting  carrier.  Are  the  goods  still  in  transit? 

45.  What  effect  does  the  stoppage  in  transit  have  upon  the  con- 
tract of  sale?     Right  endures  how  long? 

46.  Suppose  a  seller  has  received  part  payment,  and  has  also 
exercised  right  of  stoppage.     Has  he  any  further  privileges? 

47.  How  may  right  of  stoppage  be  defeated? 

48.  Explain  what  is  meant  by  "  seller's  lien."     What  is  its 
essential  feature? 

49.  When  is  the  seller's  lien  said  to  be  waived?     How  is  it  lost? 

50.  Can  the  seller's  lien  be  revived?    If  so,  how? 

51.  When  the  buyer  refuses  to  accept  the  goods,  what  can  the 
seller  do  about  it? 

226 


QUESTIONS 

52.  If  a  buyer  has  been  put  in  possession  of  the  goods  but  refuses 
to  pay  for  them,  what  can  be  done  about  that? 

53.  In  case  one  has  bought  for  future  delivery  on  a  rising  market, 
and  cannot  secure  delivery  of  goods  when  due,  what  is  the  remedy? 

54.  In  case  just  put  who  really  owns  the  goods,  i.e.  has  title 
passed  or  not? 

55.  Name  at  least  three  kinds  of  sales  void  for  illegality. 

56.  What  rights  has  the  party  defrauded  in  a  contract  of  sale? 
Give  an  illustration  with  assumed  facts. 

57.  Will  it  make  any  difference  if  fraud  was  on  buyer  or  seller? 
If  so,  what? 

58.  Explain  the  rule  "  caveat  emptor."     Why  is  it  necessary? 

59.  If  a  person  is  suspicious  of  the  quality  of  goods,  what  should 
he  do? 

60.  What  is  the  rule  as  to  "  caveat  emptor  "  and  latent  defects 
in  Massachusetts? 

61.  Name  the  technical  elements  of  fraud.     Why  do  these  rules 
exist? 

62.  What  is  the  bearing  of  honest  intentions  upon  the  question 
of  fraud  in  Massachusetts? 

63.  Distinguish  between  a  representation  and  a  warranty. 

64-    How  does  fraud  on  the  vendor  most  commonly  arise?     What 
facts  will  need  consideration  to  prove  this  fraud? 

65.  How  is  fraudulent  intent  proved? 

66.  Explain  "  Sales  to  defraud  creditors." 

67.  Suppose  a  seller  retains  possession  of  the  goods,  what  is  the 
inference? 

68.  What  can  be  said  about  "  preference  "  among  the  creditors? 

69.  Does  a  breach  of  warranty  break  and  discharge  the  contract? 
Explain  why,  or  why  not. 

70.  Is  there  any  difference,  in  an  ordinary  sale,  with  respect  to 
the  warranty  of  quality,  and  that  of  title?     Explain. 

71.  What  is  the  effect  of  a  warranty  when  the  article  has  obvious 
defects? 

72.  What  about  defects  ascertainable  only  through  the  exercise 
of  peculiar,  expert  or  intimate  knowledge  of  the  subject  matter? 

73.  What  is  the  warranty  with  reference  to  an  article  to  be  made 
by  the  seller? 

74-    How  does  "  caveat  emptor  "  affect  sales  of  goods  for  a  specific 
purpose,  or  sales  by  description? 

227 


CONTRACTS 

¥5.   What  are  the  undertakings  in  sales  of  goods  by  sample? 

76.  What  is  the  general  rule  as  to  time  of  delivery? 

77.  Define  "  symbolical  "  and  "  constructive  "  deliveries.     When 
necessary? 

78.  If  upon  delivery  there  is  a  gross  variation  in  quantity, 
what  can  buyer  do? 

79.  In  general,  how  does  delivery  to  carrier  affect  title? 

80.  What  are  the  buyer's  rights  as  to  examining  the  goods  before 
accepting? 

81.  Must  the  seller  send  the  goods  to  buyer?     When,  or  when 
not? 

82.  How  may  payment  be  made? 

83.  Explain  the  status  of  payment  by  check. 

84.  Is  a  promissory  note  payment  of  a  debt  for  goods  sold? 
Explain. 

85.  When  does  the  title  vest  in  a  credit  sale? 

CARRIERS 

86.  What  is  a  common  carrier?     Enumerate  the  kinds. 

87.  When  do  the  liabilities  of  a  carrier  begin? 

88.  What  are  carrier's  duties  as  to  accepting  goods  offered  him? 

89.  What  is  the  carrier's  duty  as  to  providing  facilities?     How 
is  his  obligation  in  this  respect  measured? 

90.  What  is  the  rule  as  to  discrimination  between  shippers? 

91.  Explain   the  extent   of  the  carrier's    liability.      State   the 
exceptions. 

92.  When  does  fault  of  the  shipper  relieve  the  carrier? 

93.  When  does  the  carrier's  liability  cease? 

94.  What  is  the  rule  for  contact  stipulations  as  to  carrier's  own 
negligence. 

95.  How  may  delivery  by  carrier  be  made?    Is  the  rule  different 
as  to  different  carriers?     Explain. 

96.  When  will  the  carriers  be  excused  from  delivering? 

97.  What  is  the  rule  as  to  delivery  when  a  negotiable  bill  of 
lading  has.  been  issued? 

98.  What  are  a  connecting  carrier's  duties?     What  if  loss  occurs? 

99.  What  is  meant  by  "  carrier's  lien  "?     What  does  it  cover? 

100.  What  is  the  relation  of  right  of  stoppage  to  carrier's  lien 
in  Massachusetts? 


228 


CHAPTER  VIII 
NEGOTIABLE   PAPER 

Competent  observers  say  that  at  least  four-fifths  of  the  interchange  of  money 
values  is  accomplished  by  means  other  than  manual  transmission  of  the 
coin.  Business  is  to-day  largely  carried  on  through  instruments  of  credit. 
Are  further  arguments  needed  to  show  that  understanding  this  branch 
of  contracts  will  be  valuable  to  the  engineer  or  business  man? 

In  this  chapter  the  necessity  for  rigid  rules  regulating  negotiability  will 
be  shown.  We  shall  learn  who  can  make  negotiable  instruments,  what 
the  responsibilities  are  of  one  who  signs  a  note,  either  as  principal  or 
agent,  and  how  that  signing  should  be  done.  What  part  does  a  bona 
fide  delivery  of  the  instrument  play  with  reference  to  its  validity?  What 
is  the  effect  of  fraud?  What  is  the  status  of  the  parties  to  accommoda- 
tion paper?  And  what  are  the  peculiar  liabilities  of  the  various  kinds 
of  indorsers?  The  characteristics  of  the  ubiquitous  bank-check,  and  of 
other  commercial  paper,  such  as  certified  checks,  bonds,  judgment  notes, 
bills  of  lading,  etc. ,  will  be  briefly  alluded  to. 

354.  The  law  of  Negotiable  Instruments  is  a  branch  of  con- 
tracts which  involves  stating  many  technical  rules  that  every- 
where govern  business  transactions.     We  have  already  hinted  at 
certain  of  its  important  elements  in  referring  to  credit  transactions 
under  the  subject  of  Sales.     The  present  treatment  deals  with  the 
medium  of  payment  when  it  is  not  a  cash  sale,  and  outlines  a  few 
of  the  most  important  rights  and  interrelations  among  the  parties 
according  to  the  rules  of  the  "  law  merchant."     The  "  law  mer- 
chant "  (i.e.  mercantile  law)  is  that  body  of  commercial  usages  and 
rules  recognized  by  civilized  nations  as  regulating  the  rights  of 
persons  engaged  in  trade.     Whenever  a  usage  has  become  general 
enough  to  be  noticed  by  the  courts  it  is  incorporated  into  judicial 
decisions,  and  thus  becomes  a  part  of  the  law. 

Our  discussion  will  state  a  few  prominent  rules  of  the  "  law 
merchant  "  pertaining  to  promissory  notes  and  checks.  Other 
forms  of  commercial  paper  will  be  briefly  mentioned.  A  reason 
for  attempting  the  treatment  of  so  great  and  important  a  subject  in 
the  present  brief  compass  may  be  found  in  the  language  of  a  great 
English  law  Lord,  who  said,  "  There  are  in  some  cases  differences 
and  peculiarities  which  by  the  statute  law  of  each  country  are 
grafted  upon  it,  and  which  do  not  apply  in  other  countries ;  but  the 
general  rules  of  the  law  merchant  are  the  same  in  all  countries." 

355.  NEGOTIABLE  PAPER  is  the  term  applied  to  that  class 

229 


§  356  CONTRACTS 

of  contracts  the  title  to  which  is  transferable  by  indorsement  and 
delivery,  or  by  delivery  alone.*  The  original  purpose  of  such 
paper  was  to  permit  responsible  merchants  to  transact  business  in 
foreign  countries  without  the  inconvenience  or  risk  of  transporting 
large  sums  of  money.  These  expedients  grew  up  with  reference  to 
foreign  business  alone,  but  their  usefulness  and  general  convenience 
soon  led  to  their  incorporation  into  domestic  affairs  where  the 
benefits  were  found  to  be  no  less.  The  natural  result  is  that  doubt- 
less by  far  the  greater  portion  of  present-day  business  transactions 
are  carried  on  by  instruments  of  credit. 

Negotiability  is  that  characteristic  of  commercial  paper  which 
renders  its  title  transferable  by  indorsement  and  delivery,  or 
delivery  alone,  so  as  to  enable  the  transferee  (the  one  taking  it)  to 
sue  upon  it  in  his  own  name. 

The  element  of  assignability  in  a  contract  differs  from  that  of  negotiability 
since  in  the  former  notice  must  be  given  to  the  debtor,  and  the  assignee  can 
take  no  better  title  than  the  assignor  had;  while  a  bona  fide  indorsee  of  negoti- 
able paper  has  a  good  title  without  notice  to  the  debtor,  and  may  even  acquire 
a  better  title  than  his  indorser  had. 

Negotiability,  therefore,  is  that  property  or  quality  by  virtue 
of  which  an  instrument  may  circulate  from  hand  to  hand  as 
money. 

356.  ESSENTIALS  TO  NEGOTIABILITY.  —  Let  us  now 
consider  the  particular  form  in  which  a  contract  must  be  put  for 
it  to  possess  negotiability. 

1.  It  must  be  in  writing,  signed  by  the  maker  or  drawer. 

2.  It  must  contain  an  unconditional  promise  or  orderf  to  pav 
a  definite  sum  of  money. 

3.  It  must  be  payable  on  demand,  or  at  a  fixed  or  determin- 
able  time  in  the  future. 

4.  It  must  be  payable  to  order,  or  to  bearer. 

5.  It  must  indicate  the  parties  to  the  contract,  or  contracts, 
with  certainty,  i.e  as  principals,  or  as  indorsers. 

6.  There  must  be  an  actual  delivery. 

Upon  each  of  these  rules  or  elements  the  law  books  contain 
multitudinous  cases.  They  exhibit  complicated  sets  of  circum- 
stances wherein  the  shades  of  meaning  of  each  word  these  rules 
contain  have  been  subjected  to  the  keenest  scrutiny  and  its  exact 

*  The  student  should  refer  to  the  topic  "  Assignment  of  Contracts,5* 
and  note  that  the  rights  of  an  assignee  of  an  ordinary  contract,  and  those  of 
the  indorsee  of  negotiable  paper,  are  very  distinct. 

f  If  it  is  a  bill  of  exchange,  or  draft. 

230 


NEGOTIABLE    PAPER  §358 

limitations  determined.  Thus  the  labors  of  court  and  counsel 
have  reduced  the  rules  to  their  lowest  terms  in  which  they  have 
just  been  stated.  It  is  believed  that  an  engineer  of  average  in- 
telligence will  have  no  trouble  in  getting  the  plain  intent  and  pur* 
pose  of  these  rules, — when  it  comes  to  an  actual  hair-splitting 
question,  as  to  whether  or  not  the  rules  are  met  and  satisfied, 
then  the  services  of  skilled  counsel  are  necessarily  the  only 
recourse. 

357.  The  Rules  Discussed. — Rule  1.  Seems  too  obvious  to 
need  further  discussion. 

Rule  2.  The  meaning  may  be  made  clearer  by  saying  that  an 
order  upon  A,  or  a  promise  made  by  him  to  pay  out  of  a  particular 
jund  in  his  hands  is  not  unconditional,  since  the  fund  may  have 
become  exhausted,  in  which  case  A's  liability  would  not  attach. 
The  person  who  holds  this  promise  or  order,  therefore,  cannot  be 
certain  of  his  rights,  and  this  element  of  uncertainty  is  what  de- 
stroys its  negotiability. 

Many  interesting  cases  have  arisen  where  a  "  condition  "  was  more  or 
less  clearly  expressed  by  the  parties  on  the  face  of  the  instrument;  many 
others  where  the  condition  was  an  implied  one.  For  example,  in  a  sale  of 
goods  where  a  promissory  note  was  given  (see  Sales  §  341),  there  was  a  failure 
of  consideration, — the  goods  were  worthless  or  out  of  existence,  etc.  Was 
it  implied  in  the  note  as  a  "  condition  "  that  its  validity  should  depend  upon 
the  proper  fulfillment  of  the  contract  of  sale?  The  question  is  submitted  as 
worthy  the  further  study  of  the  student. 

The  sum  payable  must  be  stated  with  certainty.  If  words 
and  figures  are  used,  the  words  will  control ;  but  if  the  words  are 
uncertain  or  ambiguous,  reference  may  be  had  to  the  figures. 
The  following  facts  or  circumstances,  it  should  be  noted,  do  not 
make  the  sum  uncertain;  (a)  payable  "  with  interest " ;  (6)  by 
stated  installments;  (c)  by  installments,  with  a  provision  as  to 
default ;  (d)  with  exchange ;  (e)  with  costs  of  collection. 

358.  Rule  3.     "  Payable  on  demand  "  covers  cases  where  the 
intention  of  the  parties  is  so  expressed;  or  the  paper  says  "  at 
sight  " ;  or  "  on  presentation  " ;  and  also  where  no  time  is  ex- 
pressed.    A  future  time  is  determinable  when  the  paper  specifies 
a  fixed  time  after  date,  or  after  sight ;  or,  on  or  before  a  fixed  or 
determinable  future  time  specified ;  or,  on  or  at  a  fixed  period  after 
the  occurrence  of  a  specified  event  which  is  certain  to  happen, 
though  the  time  of  happening  is  uncertain,  e.g.  "  I  promise  to  pay, 
six  months  after  my  death,"  etc.     But  if  the  instrument  is  pay- 
able upon  a  contingency  which  may  or  may  not  happen,  it  is  not 

231 


§  359  CONTRACTS 

negotiable.     (This  is  not  saying  that  it  will  not  bind  the  maker, 
however.) 

359.  Under  Rule  4  the  long  recognized  "  words  of  negotia- 
bility "  are  "  to  order  "  or  "  to  bearer."     But  it  does  not  follow, 
that  these  are  the  only  words  which  can  impart  this  important 
quality  to  the  paper.     The  intention  of  the  parties  enters  here,  as 
in  all  other  contracts,  and  so  words  equivalent  to  the  above  are 
sufficient,  if  from  them  it  can  be  inferred  that  the  person  making 
the  instrument  intended  it  to  be  negotiable.     Thus  it  is  held  that 
the  word  holder  is  synonymous  with  bearer. 

A  note  to  "  M,  or  holder  "  is  negotiable ;  but  if  "  To  the  bearer, 
M,"  the  word  "  bearer  "  is  ineffective.  In  some  States  the  word 
assigns  is  as  strong  as  either  "  order  "  or  "  bearer."  , 

360.  As  to  Rule  5  there  must  be  some  natural  or  legal  person 
named  or  pointed  out  in  the  bill  or  note  to  whom  the  money  is  to 
be  paid,  and  such  person  must  be  in  being  at  the  time  of  issuing 
the  paper.     Thus  the  common  law  rule  would  be  that  a  promise 
to  pay  "  To  A  or  B  "  would  not  be  negotiable  by  reason  of  in- 
definiteness  in  the  payee,  since  neither  party  would  have  full 
right  to  enforce  it,  but  by  statute  in  most  States  negotiability  is 
given  to  it.     An  instrument  may  be  drawn  to  the  holder  of  an 
office  for  the  time  being,  this  fact  being  the  only  clue  to  identity, 
as  "  Pay  to  the  order  of  Cashier,"  or  "  To  Secretary  of,"  "  Treas- 
urer," etc. 

361.  There  is  a  rather  curious  but  useful  deviation  from  the 
apparent  strictness  of  this  rule  as  to  certainty  of  persons  when 
the  instrument  is  payable  to  a  fictitious  or  non-existing  person, 
and  such  fact  was  known  to  the  person  making  it  so  payable.     If 
the  name  or  word  inserted  as  payee  does  not  purport  to  be  the 
name  of  a  person,  is  payable  "  To  Cash,"  "  Bills  Receivable,"  to 
"  Sundries,"  etc.,  etc.,  the  paper  is  treated  the  same  as  though  it 
bore  the  name  of  a  fictitious  person,  and  is  payable  to  bearer. 

362.  WHO  CAN  MAKE  NEGOTIABLE  INSTRUMENTS?— 
The  rule  is  brief  and  in  accordance  with  contract  doctrines.     Any 
person  who  can  contract  generally  can  make  negotiable  paper. 
The  ordinary  rules  as  to  competency  to  contract  are  stretched  a 
little  here,  in  that  infants,  persons  non  compos  mentis,  and  married 
women  (at  common  law)  can  transfer  title  by  indorsement,  though 
they  incur  no  liability  as  indorsers.     (See  §  374.) 

A  CORPORATION  may  make  simple  contracts  for  the  ordi- 

232 


NEGOTIABLE    PAPER  §364 

nary  and  legitimate  transaction  of  its  business,  i.e.  in  matters  not 
ultra  vires.  Hence  it  is  proper  for  it  to  make  notes  and  negotiable 
paper,  and  sign  them  by  the  hand  of  its  proper  officer,  in  which 
case  the  duties  and  obligations  of  the  corporation  are  the  same  as 
those  of  any  natural  person.  This  is  also  the  exact  situation  with 
reference  to  coupons  attached  to  corporation  bonds ;  they  are 
negotiable  promissory  notes  of  the  corporation. 

An  AGENT,  likewise,  may  make  and  indorse  negotiable  paper 
if  he  makes  it  appear  clearly  in  proper  form  that  it  is  the  act  of,  the 
principal,  and  that  he  acts  simply  as  agent.  Too  much  care  can- 
not be  exercised  in  this  respect,  since  the  technicalities  must  be 
strictly  adhered  to,  and  one  may  inadvertently  incur  heavy 
financial  obligations  through  omitting  to  put  the  two  letters  b  and 
y  in  their  proper  places.  The  invariable  rule  is  that  the  signature 
must  be  in  the  name  of  the  principal,  the  agent's  name  and  capacity 
plainly  appearing  in  addition  thereto.  Thus,  signing  "  A.  B.,  by 
C.  D."  relieves  C.  D.  of  responsibility.  Also,  "  A.  B.,  by  his  agent, 
C.  D.;"  is  good;  or  "  C.  D.,  agent  for  A.  B.,"  is  safe.  But  merely, 
"  C.  D.,  Agent,"  has  only  the  effect  of  binding  C.  D.  himself,  no 
matter  whom  he  thought  he  was  binding. 

363.  It  may  be  noticed,  in  passing,  that  executors,  guardians, 
trustees  and  other  persons  in  a  fiduciary  capacity  have  no  power 
to  bind  the  estates  which  they  represent,  even  though  they  issue 
such  negotiable  paper  in  the  interest  and  behalf  of  such  estate. 
They  make  themselves  personally  liable  only,  even  if  the  instru- 
ment expressly  describes  their  representative  capacity.     In  such 
cases  they  contract  and  pay  personally  but  are  reimbursed  upon 
filing  their  accounts  in  the  equity  court.     This  is  an  application  of 
the  ordinary  rules  of  equity  to  those  in  trust  relationships,  and 
prevents  trustees  and  those  charged  with  the  care  of  estates  from 
gambling  for  their  own  enrichment  upon  the  security  which  such 
trusts  afford. 

364.  SIGNING.  —  The  general  rule  is  that  it  will  be  sufficient 
if  the  name  of  the  maker  or  drawer  appears  on  any  part  of  the 
instrument  in  such  a  way  as  to  exhibit  an  apparent  intent  to  enter 
into  a  contract  obligation.     Signing  may  be  by  "  mark  "  or  by 
initials,  and  may  be  made  with  pencil,  ink,  or  printed  by  impress 
of  type  or  rubber  stamp.     The  matter  of  intent  is  of  great  impor- 
tance, since  if  signed  without  intent,  as  through  ignorance  of  the 
character  of  the  instrument;  it  has  been  held  that  this  is  not  a 

233 


§  365  CONTRACTS 

binding  signature,  because  the  mind  did  not  accompany  it.  This 
is  not  to  be  taken  to  mean,  however,  that  it  is  ever  safe  to  sign  anj 
instrument  without  satisfying  one's  self  as  to  its  general  nature. 

365.  By  Whom.  —  (1)  Where  a  person  signs  a  bill  or  note  in 
a  trade  or  assumed  name,  he  is  liable  thereon  just  as  if  he  had  signed 
in  his  own  name. 

An  illustrative  case  would  be  where  a  person  carried  on  a  business  under 
a  fictitious  name,  as  The  Star  Cement  Co.,  etc.,  the  organization  being  neither 
a  partnership  nor  a  corporation. 

(2)  Signing  the  firm  name  by  a  member  is  equivalent  to  sign- 
ing by  all  of  the  persons  liable  as  partners  of  that  firm,  acting 
through  him  as  an  agent.  This  is  the  common  partnership 
doctrine  of  general  agency  (see  §  277)  and  will  include  active, 
dormant,  and  secret  partners,  as  well  as  partners  by  implication. 
Thus,  where  a, retiring  partner  gives  no  notice  of  withdrawal  he 
may  become  liable  upon  a  paper  signed  in  the  firm  name  subse- 
quent to  his  retirement. 

The  engineer's  attention  should  be  called  to  the  fact  that  the  partner's 
power  to  sign  negotiable  instruments  is  much  more  strongly  developed  in  the 
case  of  trading  than  in  professional  partnerships, — as  to  which  the  engineer 
would  do  well  to  inform  himself. 

It  is  but  a  step  to  the  proposition  that  it  is  immaterial  by  what 
hand  the  signature  is  made  provided  there  is  an  authority  so  to 
sign,  either  express  or  implied. 

In  a  rather  extreme  case,  an  instrument  payable  to  C's  order  was  to  be 
indorsed  by  him.  His  wife  had  full  authority  to  make  such  indorsements 
for  him.  For  some  reason  the  wife  did  not  sign,  but  had  her  daughter  do  it. 
The  daughter  signed  C's  name  in  the  wife's  presence,  and  by  her  direction. 
This  was  held  to  be  a  good  indorsement  by  C. 

366. '  Joint  Signing.  —  Where  a  note  is  signed  by  two  or  more 
persons,  it  may  be  a  joint  note,  or  a  joint  and  several  note;  it  will 
be  ascertained  which  from  the  language  of  the  note.  As  it  is 
quaintly  phrased,  the  intention  of  the  parties  "  must  be  found 
within  the  four  corners  of  the  instrument."  If  it  reads :  "  We 
promise,"  it  is  obviously  the  joint  obligation  of  the  signers  as 
individuals  though  not  as  partners,  i.e.  each  is  bound  to  pay  half 
only.  If  it  reads :  "  I  promise  to  pay,"  and  is  signed  by  two  or 
more  persons,  the  note  is  joint  and  several  (see  §  279) ;  so  also  if 
it  is  "  We,  or  either  of  us,"  promise,  and  still  more  plainly  if  it  is 
"  We  jointly  and  severally  promise." 

367.  Fraud.  —  When  a  signature  has  been  induced  by  fraud 
the  instrument  is  invalid,  and  of  no  effect. 

234 


NEGOTIABLE    PAPER  §368 

A  strong  case  might  be  where  a  person  writes  his  autograph  on  a  blank 
paper,  which  paper  comes  to  the  hands  of  a  forger.  He  writes  above  it  a 
negotiable  instrument  and  then  puts  it  into  circulation.  The  fraud  is  ap- 
parent, and  the  signer  not  bound.  Where  such  a  case  arises,  however,  it 
will  be  necessary  for  the  signer  to  show  that  he  was  not  guilty  of  negligence, 
— for  otherwise  he  may  find  it  hard  to  dispose  of  the  suit  of  one  who  has 
purchased  the  instrument  innocently  and  for  value. 

In  a  somewhat  similar  case  where  a  person  signed,  he  had  an 
opportunity  to  satisfy  himself  as  to  the  exact  nature  of  the  docu- 
ment and  failed  to  do  so.  The  instrument  later  came  into  the 
hands  of  an  innocent  purchaser  for  value  (called  also  a  "  holder  in 
due  course  ")  and  the  signer  was  said  to  be  estopt  (prevented  or 
precluded)  from  denying  its  validity  or  claiming  that  he  intended 
to  sign  an  entirely  different  sort  of  an  instrument.  This  again 
exemplifies  the  tort  doctrine:  "  Every  man  is  presumed  to  know 
and  anticipate  the  natural  consequences  of  his  acts,  and  is  answer- 
able therefor." 

DATING  and  Other  Terms.  —  The  validity  and  negotiable 
character  of  an  instrument  is  not  affected  by  the  fact  that  it  is  not 
dated,  nor  that  it  is  antedated,  nor  postdated,  if  such  antedating 
or  postdating  is  not  done  for  a  fraudulent  or  illegal  purpose.  But 
since  the  date  usually  determines  when  the  instrument  is  to  be 
paid,  the  lack  of  it  will  render  the  instrument  useless  as  a  circulat- 
ing medium. 

Neither  will  the  validity  and  negotiable  character  be  affected  if 
the  instrument  does  not  specify  the  value  given,  or  that  any  value 
has  been  given  therefor,  though  the  words  "  value  received  "  are 
usually  used  to  indicate  that  the  instrument  is  founded  upon  a 
sufficient  consideration.  This  doe.s  not  mean,  however,  that  a 
real  consideration  can  be  dispensed  with  any  more  than  in  any 
other  contract. 

The  instrument  will  be  equally  effective  if  it  does  not  specify  the 
place  where  it  is  drawn,  nor  the  place  where  it  is  payable;  or  if  it 
designates  a  particular  kind  of  money  in  which  payment  is  to  be 
made.  The  presence  of  a  seal,  similarly,  will  have  no  effect. 

368.  DELIVERY.  —  No  negotiable  instrument  becomes  oper- 
ative until  it  is  delivered,  by  which  is  meant  the  actual  transfer  of 
possession  with  intent  to  transfer  the  title.  As  with  other  chat- 
tels, delivery  may  be  either  actual  or  constructive,  the  words 
being  used  in  the  same  sense  as  previously.  (§  304.) 

A  promissory  note  was  fully  and  perfectly  drawn  and  executed,  but  was 
left  locked  in  the  drawer  of  the  maker  from  which  it  was  stolen  by  a  thief 
who  subsequently  negotiated  it.  The  note  was  bad  because  never  delivered. 

235 


§  369  CONTRACTS 

369.  Escrow.  —  A  very  interesting  class  of  cases  arises  when 
there  is  a  "  delivery  in  escrow."     There  is  a  delivery  to  some 
person  other  than  the  one  entitled  ultimately  to  receive  the  in- 
strument.    This  bailee  is  to  hold  it  until  certain  events  happen,  or 
certain  conditions  are  complied  with,  when  the  instrument  is 
to  take  immediate  effect,  even  though  not  yet  finally  delivered. 
The  test  is  to  ascertain  whether  the  person  so  holding  acts  as 
bailee  or  agent  for  maker,  subject  to  his  control;  or  whether,  in 
delivering  it  to  such  person,  the  maker  has  passed  it  beyond  his 
control  in  such  a  way  that  the  other  is  acting  as  bailee  for  the 
ultimate  owner. 

Suppose  you  send  a  check  or  note  to  a  bank,  directing  them  to  hold  it 
until  the  title  papers  to  a  certain  piece  of  land  are  presented  at  the  bank, 
when  they  are  to  make  payment  in  your  behalf.  Plainly  the  bank  acts  as 
your  agent,  and  as  such  is  subject  to  your  control. 

In  other  cases,  a  person  has  made  notes  binding  his  estate,  placed  them 
in  envelopes  and  handed  the  same  to  some  one  with  instructions  that  it  should 
be  opened  only  after  the  giver's  death.  Sometimes  the  qualification  is 
added, — "  This  is  yours  if  I  never  call  for  it,"  etc.  Here  it  has  been  held  that 
the  receiver  is  merely  the  agent  of  the  giver,  keeping  custody  for  him. 

It  is  a  fundamental  rule  of  agency  that  death  of  the  principal  revokes 
the  agent's  authority.  Hence  as  the  holder,  by  the  terms  of  his  agency, 
could  not  open  the  envelope  to  effectuate  the  delivery  until  after  the  death 
of  the  maker,  the  death  having  occurred,  the  agency  is  destroyed  and  there 
can  be  no  possible  "  delivery  "  in  this  way.  But  the  line  is  drawn  between 
this  situation  and  the  one  where  the  envelope  is  handed  over  in  such  a  way 
as  to  allow  the  giver  no  further  control  over  it.  Then  it  is  a  true  delivery 
in  escrow, — in  a  case  like  the  above,  the  condition  precedent  to  its  validity 
is  the  death  of  the  maker. 

370.  MAKER'S  LIABILITIES.  —  The  maker's  liability  upon 
a  negotiable  instrument  is  that  of  principal  debtor,  and  his  act  in 
signing  the  paper  is  a  promise  to  the  payee  and  to  all  subsequent 
holders  of  the  instrument  that  he  will  pay  it  when  due,  and  accord- 
ing to  the  terms  (or  tenor)  of  the  paper  at  the  time  of  signing.     No 
demand  need  be  made  upon  him  to  fix  his  liability,  as  will  be  need- 
ful in  the  case  of  an  indorser.     His  engagement  to  pay  is  absolute 
and  unconditional. 

Payment.  Suppose  A  makes  a  note  payable  to  B's  order,  and  B  indorses 
it  in  blank  to  C,  from  whom  it  is  stolen.  At  maturity  the  thief  presents  it 
to  A  who  pays.  Must  he  again  pay  to  C?  No,  if  the  payment  was  made 
in  good  faith,  because  a  note  indorsed  in  blank  is  payable  to  bearer,  and 
hence  payment  to  the  thief  was  according  to  the  tenor  of  the  instrument. 
Moreover,  all  danger  would  have  been  avoided  if  B  had  indorsed  in  full  instead 
of  in  blank,  for  then  the  paper  would  show  its  history,  and  the  maker  would 
be  warned  if  it  did  not  come  from  proper  custody. 

371.  MAKER'S    DISCHARGE.  —  The    maker    or    primary 
debtor  is  discharged  from  liability  on  the  instrument :  — 

(1)   By  the  holder's  physical  destruction  of  the  instrument. 

236 


NEGOTIABLE    PAPER  §373 

(2)  By  the  holder's  voluntary  cancellation  of  the  instrument. 
(Must  be  apparent  on  its  face.) 

(3)  By  the  holder's  renouncing  his  rights.     If  this  occurs  the 
instrument  is  discharged,  except  that  if  it  happens  before  maturity 
there  is  no  effect  as  to  innocent  third  persons  who  purchase  it 
before  that  date. 

(4)  By  payment  in  due  course,  i.e.  when  due,  and  according  to 
the  terms  of  the  instrument. 

(5)  By   material    alterations.     This    is    because   the    altered 
instrument  is  not  the  same  as  that  by  which  the  maker  bound 
himself. 

372.  DISHONOR.  —  When  the  maker  refuses  or  neglects  to 
pay  at  maturity  the  paper  is  said  to  be  "  dishonored."     The  holder 
of  a  note  is  required  to  give  notice  to  all  indorsers  that  the  note,  or 
paper,  has  not  been  paid  at  maturity.     Should  the  holder  fail  to 
do  this,  the  indorser  is  by  the  law  merchant  released  from  his  con- 
tract.    Hence  this  notice  of  dishonor  should  always  be  given, 
though  there  are  certain  cases  when  it  will  be  excused.     The  effect 
of  such  notice  is  to  apprise  the  last  indorser  that  the  holder  looks 
to  him  for  payment.     This  notice  must  be  given  promptly,  in 
order  that  the  indorser  may  have  an  opportunity  to  look  to  those 
who  are  in  turn  liable  to  him,  in  case  he  has  to  pay. 

373.  ACCOMMODATION    PAPER   is    a    device   to   supply 
credit.     X  wishes  to  raise  money  and  applies  to  Y  for  the  use  of 
his  name  to  support  X's  credit.     For  this  purpose,  Y  signs  a  note 
payable  to  X's  order,  or  indorses  one  already  in  existence,  —  gen- 
erally without  consideration.     Y  is  liable  to  a  subsequent  holder, 
even  though  that  holder  knew  there  was  no  actual  business  trans- 
action between  X  and  Y. 

Therefore,  an  accommodation  party  is  oner  who  has  signed  a 
note  as  maker  or  endorser,  without  recompense,  and  for  the  pur- 
pose of  lending  his  name,  standing,  or  credit  to  some  other  person. 
He  is  liable  to  all  parties  who  subsequently  come  upon  (indorse) 
the  paper,  saving  only  the  party  accommodated,  between  whom 
and  himself  there  is  an  implied  contract  (see  §  68)  that  the  accom- 
modator  shall  be  repaid  for  all  loss  incurred  by  him,  in  case  he 
has  to  pay  the  instrument.  (See  Appendix  Note  15,  Suretyship.) 

But  the  accommodation  party  does  not  become  liable  unless  the  paper 
has  really  been  transferred  to  some  one  for  value,  e.g.,  suppose  B  signs  as 
accommodation  for  A,  who  then  makes  a  gift  of  the  paper  to  C.  It  is  certain 
that  C  cannot  sue  B. 

237 


§374  CONTRACTS 

Considering  the  question  of  whether  or  not  C  can  sue  A,  it  is  said  that  a 
valuable  consideration  is  necessary  between  the  immediate  parties  to  a  bill 
or  note,  as  much  as  in  a  simple  contract.  The  want  or  failure  of  such  con- 
sideration may  always  be  shown  between  the  immediate  parties  to  the  in- 
strument. Thus,  if  the  note  was  delivered  as  a  gift  to  B,  he  could  not  sue 
A  upon  it,  even  though  there  was  a  strong  moral  obligation,  or  natural  love 
and  affection  prompted  A  to  make  the  gift.  (5  Pick.  391.) 

374.  INDORSEMENT  is  a  highly  important  act  accomplished 
by  the  holder's  writing  his  name  upon  the  back  of  a  negotiable 
instrument  for  the  purpose  of  transferring  his  title  thereto.     One 
not  a  party  to  the  contract  may  also  indorse,  for  the  purpose  of 
strengthening  the  holders'  security.     Such  an  indorser  assumes  a 
contingent  liability  for  its  future  payment.     (See  §  373.)     Indorse- 
ment is  not  complete  until  the  instrument  is  delivered.     The  act 
of  indorsement  is  of  two-fold  nature,  —  it  consists  of  two  distinct 
contracts.     First,  the  title  to  the  bill  or  note  is  transferred ;  second- 
ly, the  law  implies  a  warrant  for  the  payment  of  the  instrument 
when  due,  provided  it  is  duly  presented  to  the  maker,  not  paid  by 
him,  and  the  indorser  is  duly  notified  of  the  failure.     This  war- 
rant runs  for  the  benefit  of  any  or  all  subsequent  holders  of  the 
paper,  when  they  "  hold  in  due  course,"  i.e.  have  purchased  it 
for  value,  and  in  ignorance  of  its  defects,  —  if  there  are  any. 

As  in  every  other  contract  relation,  the  intention  of  the 
parties  is  of  paramount  importance.  Thus,  there  are  various 
indorsements  known  to  the  law  merchant.  They  are  used  as 
circumstances  require,  and  according  to  the  indorser's  intention. 
The  different  indorsements  are  named:  "  In  blank";  "  In  full," 
or  "  special  "  ;  "  without  recourse  "  ;  "  conditional  "  ;  and  "  re- 
strictive." A  brief  statement  of  the  effect  of  each  will  be  given. 

375.  The    Indorsements.  —  Indorsement    in    blank    consists 
simply  in  writing  the  name  of  the  owner,  or  holder  (by  him) ,  across 
the  back  of  the  paper ;  its  effect  is  to  make  the  paper  payable  to 
the  bearer,  whoever  he  may  be. 

In  full,  or  special  indorsement,  is  where  the  indorser  writes 
"  Pay  to  X  or  order  "  over  his  signature.  By  it  title  passes  to  the 
person  named  as  indorsee  who  can  only  transfer  title  by  another 
indorsement.  "  Without  recourse  "  passes  title  to  the  instrument 
but  is  used  expressly  to  avoid  one  of  the  secondary  effects,  viz. : 
the  warranty  that  the  instrument  is  good,  or  that  the  indorser  will 
make  it  good,  in  default  by  the  principal  or  others  bound  upon  it. 
It  is  accomplished  by  using  the  words  "  Without  Recourse  "  or 
their  equivalent  over  the  indorser's  name.  The  same  thing  is  also 

238 


NEGOTIABLE    PAPER  §  37V 

called  a  qualified  indorsement,  and  is  used  when  for  any  reason 
the  holder  does  not  wish  to  be  further  bound  in  the  matter.  A 
conditional  indorsement  is  probably  but  little  used ;  by  it  possession 
passes,  but  not  title  until  the  happening  of  some  condition  named 
as  "  Pay  A.  D.  or  order  unless  before  payment  I  give  you  notice 
otherwise."  A  restrictive  indorsement  is  very  common,  as  where 
paper  is  indorsed  to  an  agent  "  For  collection/'  or  "  JFor  deposit." 
The  effect  is  to  give  custody,  but  not  ownership.  Suppose  X, 
doing  business  in  New  York,  gives  you  a  note  payable  at  the 
Knickerbocker  Trust  Co.  in  that  city.  You  deposit  it  with  the 
Shawmut  Bank  in  Boston,  for  collection.  The  Shawmut  does 
not  own  the  note,  but  is  your  agent  for  collection. 

An  indorsement  must  be  of  the  entire  instrument.  If  it  pur- 
ports to  transfer  only  a  part  of  the  amount  payable,  it  does  not 
operate  as  a  negotiation.  If  the  name  of  the  payee  is  misspelled, 
he  may  indorse  the  paper  in  the  same  form,  adding  if  he  thinks 
fit,  his  own  proper  signature. 

376.  INDORSEE'S  WARRANTIES.  —  The  customs  of  the 
law  merchant  have  made  the  obligations  of  an  indorser  so  num- 
erous and  important  that  they  should  be  stated  here.     It  is  held 
that  he  warrants  to  his  indorsee  and  to  all  subsequent  holders, 
and  cannot  deny  the  following  facts :  — 

(1)  That  the  paper  will  be  paid  when  due ; 

(2)  That  it  is  in  every  respect  genuine,  and  is  neither  forged, 
fictitious,  nor  altered ; 

(3)  That  it  is  a  valid  obligation,  and  that  the  contracts  be- 
tween all  prior  parties  are  valid ; 

(4)  That  the  prior  parties  were  competent  to  bind  themselves ; 

(5)  That  he  as  indorser  has  a  lawful  title  to  the  bill  or  note, 
and  also  the  right  to  transfer  it.     All  but  the  first  of  these  apply 
to  an  indorser  without  recourse;  otherwise  all  apply  to  every 
indorser. 

377.  INDORSER'S   DISCHARGE. —A  person   secondarily 
liable,  as  the  indorser  of  a  note,  may  be  released  or  discharged  in 
any  of  the  following  ways :  — 

(1)  By  discharge  given  to  any  prior  party  by  the  holder.     This 
is  because  every  one  may  indorse  on  the  strength  of  the  prior  in- 
dorsements, —  hence  if  one  of  them  is  discharged,  the  chain  is 
broken. 

(2)  By  a  binding  agreement  between  the  holder  and  a  priol 

239 


§  378  CONTRACTS 

holder  that  he  should  not  be  sued  for  a  definite  time.  This  seri- 
ously impairs  the  rights  of  all  indorsers  subsequent  to  the  one  so 
relieved,  and  hence  discharges  their  obligations. 

(3)  By  the  holder's  voluntary,  cancellation  of  the  indorsees 
name. 

(4)  By  a  material  alteration.     This  avoids  the  instrument  as 
to  all  parties  who  were  bound  upon  it  at  the  time  of  the  alteration, 
because  it  makes  a  change  in  their  contract  to  which  they  have 
not  assented. 

(5)  By  payment  by  any  other  indorser  at  or  after  maturity. 
This  discharges  all  others  who  indorsed  subsequently  to  him. 

378.  Purpose   of  Rules.  —  A  negotiable  instrument's  stages 
of  progress  from  hand  to  hand  may  be  likened  to  the  forging  of  a 
chain  of  credits,  link  by  link.     The  foregoing  rigorous  rules  have 
been  found  to  be  necessary  for  preserving  integrity  and  good 
faith  in  business  dealings.     A  little  thought  will  show  that  the 
only  way  in  which  these  rules  can  be  followed  and  made  effective 
is  that  every  man  must,  before  accepting  any  instrument  of  credit, 
scrutinize  it  and  him  who  transfers  it  so  closely  that  negligence 
cannot  be  imputed  to  him.     This  he  must  do  in  the  light  of  the 
transferor's   credit  and  business  standing.     He  must  also  give 
due  weight  to  all  the  facts  whi.ch  have  come  to  his  knowledge  or 
bear  upon  the  transaction,  since  the  doctrine  of  "  notice  "  plays 
a  most  conspicuous  part  in  these  rules.     In  practice  each  individual 
generally  looks  no  farther  back  than  his  indorser;  taking  the 
analogy  of  the  chain,  he  only  examines  the  link  next  his.     But 
as  that  link  has  been  made  under  the  same  close  scrutiny  of  the 
link  preceding  it,  and  so  on,  back  to  the  maker,  the  strength  of 
the  chain  of  credit  is  thus  assured,  and  the  negotiable  instrument 
has  fully  served  the  purpose  of  commerce.     To  allow  this,  and  to 
insure  this,  the  rules  are  strict  and  uncompromising. 

379.  PRESENTMENT  of  a  bill  or  note  is  necessary  in  order 
to  hold  the  indorsers,  because  at  maturity  demanding  payment 
of  the  maker  is  a  condition  precedent  to  the  indorsers'  liability. 

What  is  a  sufficient  presentation  to  effectually  bind  such  in- 
dorsers depends  somewhat  upon  the  particular  facts  of  the  case. 
It  is  held  that :  — 

(1)  It  must  be  made  by  the  holder,  or  one  duly  authorized  by 
him; 

(2)  To  the  maker  of  a  note,  or  his  authorized  agent,  such  as  a 

240 


NEGOTIABLE    PAPER  §  38'i 

clerk,  if  made  at  the  place  of  business ;  or  the  wife,  if  it  is  to  be 
presented  at  the  maker's  residence. 

(3)  It  must  be  made  on  the  exact  date  of  maturity,  unless  there 
is  a  legal  excuse  for  not  doing  so ;  and 

(4)  At  a  proper  place,  i.e.  at  a  particular  place  if  one  is  named, 
otherwise  at  the  home  or  place  of  business  of  the  maker ;  and 

(5)  At  a  reasonable  hour,  i.e.  the  usual  banking  or  business 
hours. 

380.  A  JUDGMENT  NOTE  is  in  form  an  ordinary  note  to 
which  is  added :  — 

(1)  A  power  of  attorney  (see  §.  134)  for  the  holder,  or  any  at- 
torney, to  confess  judgment  against  the  maker  at  maturity; 

(2)  A  waiver  of  the  benefit  of  homestead  exemption  from  at- 
tachment, etc. ; 

(3)  An  agreement  to  pay  attorney's  fees  for  such  confession. 

381.  Theory  and  Benefits.  —  A  judgment  note  gives  the  holder  great 
advantage  over  an  ordinary  promissory  note,  especially  when  time  is  an 
important  element  in  collection.     The  purpose  of  all  legal  procedure  in  serving 
the  writ  on  a  defendant,  summoning  him  to  court,  and  the  legal  steps  by 
which  a  final  judgment  is  rendered  by  the  court,  is  that  the  defendant  shall 
have  a  full  and  fair  trial  on  the  merits  of  his  case,  with  all  possible  opportunity 
to  defend  himself,  and  to  set  forth  extenuating  circumstances.     This  accords 
with  the  spirit  of  the  common  law  and  constitutional  provisions. 

Now  if  the  future  defendant  is  willing  to  forego  putting  this  machinery 
into  motion,  he  may  waive  these  rights  by  signing  a  judgment  note  for  his 
debt.  The  judgment  is  the  kernel  of  the  nut,  but  as  he  has  already  "  confessed" 
it, — settled  out  of  court,  as  it  were, — everything  else  the  court  does,  such  as 
ordering  execution  on  defendant's  property,  etc.,  is  merelv  routine,  and  can 
be  disposed  of  in  a  few  hours.  If  it  were  necessary  to  bring  suit,  serve  the 
writs,  conduct  the  trial,  get  judgment,  and  finally  to  secure  execution  upon 
an  ordinary  note  it  might  take  several  months.  Possibly  more  than  a  year 
would  be  required  in  the  congested  condition  common  to  courts  at  most 
commercial  centers.  If  the  defendant  is  in  a  critical  financial  condition, 
with  numerous  creditors,  the  advantage  of  being  early  upon  the  grounds  is 
apparent. 

382.  CHECKS.  —  Of  all  commercial  paper,  probably  checks 
are  in  most  general  use,  supplying  a  convenient  medium  for  trans- 
mitting funds  between  banks  and  bankers  and  their  customers. 
By  the  authorities,  a  check  is  a  "  draft  upon  a  bank  or  banking 
house,  ordering  the  payment  of  a  certain  sum  of  money,  abso- 
lutely, and  upon  demand,  to  a  certain  person  therein  named,  or 
to  him  or  order,  or  to  bearer."  It  is  by  its  face  an  appropriation 
of  so  much  money  belonging  to  the  drawer  which  is  in  the  hands 
of  the  drawee.  The  identity  of  the  drawee,  whether  a  bank,  in- 
dividual, partnership,  or  corporation  must  be  expressed  on  the 

241 


§  383  CONTRACTS 

pfyper  with  sufficient  clearness  so  that  the  holder  may  know  upon 
whom  to  call  for  payment. 

383.  Presentment.  —  A  check  must,  within  a  reasonable  time, 
be  presented  to  the  party  upon  whom  it  is  drawn  for  payment,  i.e. 
to  be  "  cashed."     What  is  a  reasonable  time  depends  upon  cir- 
cumstances and  the  customs  of  trade.     The  following  rules  are 
safe :     If  the  holder  of  the  check  and  the  banker  are  in  the  same 
town  or  city,  it  should  be  presented  not  later  than  during  business 
hours  of  the  next  week-day  after  it  is  received.     If  these  parties 
are  in  different  places  it  must  be  forwarded  on  the  next  business 
day,  or  earlier,  to  the  banker's  city  to  be  there  presented  by  the 
owner's  agent  on  the  next  business  day  after  its  receipt. 

Checks  are  paid  in  the  order  of  their  presentment,  not  in  their 
order  of  issue,  —  another  reason  for  diligence  in  presentment. 
If  a  check  has  been  lost  it  is  the  duty  of  the  owner  or  holder  to  give 
immediate  notice  to  all  the  parties  interested,  so  as  to  prevent 
payment  to  any  one  not  entitled  to  receive  it. 

384.  Protest.  —  In  a  technical  sense,  protest  means  the  formal 
notice  executed  by  a  notary  that  the  instrument  has  been  dis- 
honored; as  used  in  business,  it  includes  all  steps  necessary  to 
charge  an  indorser.     The  effect  of  protest  for  non-payment,  when 
accompanied  by  notice  to  all  the  parties  on  the  paper,  is  to  make 
all  of  them  liable  to  the  holder  of  the  paper  for  its  amount,  with 
damages. 

When  payment  has  been  refused,  the  holder  should  take  the  instrument 
to  a  notary  whose  first  duty  is  to  make  a  formal  demand  for  payment,  which 
being  refused,  he  must  so  certify.  It  is  customary  for  the  notary  to  give 
notice  to  all  persons  secondarily  liable,  though  this  is  held  not  to  be  a  part 
of  his  official  duty.  Protest  must  be  made  upon  the  day  of  its  dishonor, 
unless  circumstances  beyond  the  holder's  control  prevent.  And  the  paper 
must,  as  a  rule,  be  protested  at  the  place  where  it  was  dishonored. 

It  has  already  been  said  that  notice  is  necessary  to  bind  the  indorsers. 
This  is  a  right  which  they  may  waive  should  they  see  fit.  It  is  accomplished, 
frequently,  by  stamping  the  words  "  No  Protest"  with  their  endorsement . 
The  effect  is,  not  that  the  indorser  varies  his  liability  in  any  way,  but  that 
he  is  willing  to  be  bound  without  the  formalities  of  protest.  Incidentally, 
there  is  a  saving  of  notary's  fees  for  protesting. 

385.  Duty  of  Bank.  —  The  bank  must  honor  the  checks  of  its 
depositors  to  the  extent  of  their  funds,  though  it  must  have  time  to 
make  proper  entries  in  its  books  to  ascertain  the  state  of  de- 
positors' accounts.     It  is  the  bank's  duty  to  satisfy  itself  that  a 
bona  fide  holder  of  the  check  presents  it,  —  and  it  pays  at  its  peril. 
Hence  if  a  forged  indorsement  is  the  basis  of  their  payment,  the 
bank  will  be  liable  to  pay  the  same  over  again  to  those  rightfully 

242 


NEGOTIABLE    PAPER  §388 

entitled.  A  bank  is  not  bound  to  pay  unless  it  is  in  full  funds; 
neither  is  the  holder  bound  to  accept  part  payment  from  them,  as 
he  is  entitled  to  the  whole.  The  holder  cannot  safely  part  with 
the  check  unless  for  the  whole  amount.  The  bank  is  entitled  to 
possession  of  the  paper  since  that  is  its  voucher  for  funds  paid  out. 
If  a  check  proves  to  be  bad,  i.e.  there  are  no  funds  to  meet  it  in  the 
bank  upon  which  it  is  drawn,  the  duty  upon  the  drawer  to  make 
the  payment  in  some  other  form  is  by  no  means  discharged,  since 
payment  by  check  is  a  conditional  one. 

386.  CERTIFIED    CHECKS.  —  A    depositor   may    draw    a 
check  against  his  account,  take  it  to  the  bank  and  have  it  "  certi- 
fied "  which  is  done  by  a  bank  officer  writing  "  Certified  "  with  his 
name  or  initials  on  its  face  as  a  memorandum.     The  drawer  then 
hands  this  check  to  any  one  to  whom  he  may  be  indebted,  or  who 
wishes  to  hold  some  security  from  him,  and  the  recipient  is  excused 
from  the  rules  as  to  prompt  presentment. 

The  effect  is  that  the  bank  has  assumed  an  unconditional  obligation  to 
pay  the  amount  of  the  check  whenever  presented,  and  has  in  fact  set  apart 
sufficient  funds  to  satisfy  it,  charging  them  against  the  account. of  him  who 
made  the  check.  This  obligation  renders  the  paper  as  good  as  bank-notes 
(currency),  whereas  in  the  case  of  an  ordinary  check  the  significance  and 
validity  of  the  transaction  by  which  it  changes  hands  may  be  marred  by  the 
condition  that  the  drawer  has  no  funds  (or  inadequate  ones)  to  satisfy  the 
check  when  presented.  Thus  certification  is  a  great  protection  to  the  holder 
of  the  check,  putting  the  bank's  credit  in  place  of  that  of  the  drawer. 

For  these  reasons,  most  bids  for  engineering  construction  are 
required  to  be  accompanied  by  certified  checks  of  large  denomina- 
tion, to  be  returned  in  case  the  bid  is  not  accepted,  or  be  forfeited 
if  a  contract  is  not  entered  into  after  being  awarded,  etc.,  etc. 

387.  This  practice  of  requiring  certified  checks  of  bidders  has  evidently 
grown  up  on  the  theory  that  a  contractor's  fitness  to  undertake  the  work  in 
question  and  his  general  responsibility  are  to  be  measured  by  the  size  of  his 
bank  account.     It  has  been  justly  urged  that  this  view  is  fallacious.     A 
bank  would,  as  a  matter  of  ordinary  business,  certify  a  check  for  a  new  de- 
positor as  quickly  as  for  an  old  one,  the  only  prerequisite  being  a  deposit 
at  least  equal  in  amount  to  the  face  of  the  certified  check.     Thus  the  principal 
purpose  for  requiring  such  checks  in  engineering  work  might  be   largely 
defeated.     The  modern  and  more  satisfactory  way  is  to  require  a  performance 
or  fidelity  bond  of  a  Bonding  and  Security  Company,  who,  like  all  others 
doing  an  insurance  business,  investigate  their  risks  before  accepting  them. 
Plainly  a  bank  never  does  this. 

388.  BONDS.  —  A  bond  is  a  written  contract,  under  seal, 
whereby  one  person  binds  himself  to  pay  a  specific  sum  of  money  to 
another.     When  expressly  negotiable  in  form,  or  clearly  intended 
to  be  so,  it  is  practically  equivalent  to  a  promissory  note.     This  is 
an  ordinary  bond,  and  is  a  promise  to  pay  absolutely.     It  is  much 

243 


§  389  CONTRACTS 

used  by  municipal  and  other  corporations  for  the  purpose  of  rais- 
ing money  on  long-time  loans,  for  improvement  of  plant,  etc.  The 
money  for  meeting  the  bonds  at  maturity  is  commonly  set  aside 
from  the  annual  earnings  or  taxes,  and  placed  in  a  sinking  fund. 

Another  sort  of  bond,  frequently  met  with  by  the  engineer,  is  where  the 
payment  is  made  to  depend  upon  a  contingency,  which,  if  the  contingency 
does  not  happen,  the  promise  in  the  bond  is  to  be  of  no  effect.  Such  are 
the  "  faithful  performance  "  bonds,  so  common  in  contract  work,  and  also 
"  bail-bonds  "  given  by  "  bondsmen  "  to  secure  the  personal  liberty  of  a  person 
under  arrest  in  a  civil  process.  (See  also  §  §  432  and  31.) 

389.  The  essentials  of  any  bonds  are:     Proper  parties,  seal, 
signature,  delivery  and  acceptance.     The  discussion  of  these  ele- 
ments under  promissory  notes  (see  §  356)  will  apply  here  also. 
Corporation  bonds  are  frequently  issued  with  small  notes,  known 
as  coupons,  attached,  and  when  they  are  severed  from  the  bond 
they  are  promissory  notes  for  the  payments  of  installments  of 
interest  when  the  coupons  mature,  i.e.  when  the  interest  becomes 
due.     When   thus    detached   these   coupons    are   negotiable   by 
delivery,  and  the  bond  need  not  be  produced  when  the  coupons 
are  presented  for  payment. 

390.  OTHER  MERCANTILE  PAPER.  —In  closing  this  hasty 
treatment  of  the  subject,  a  few  definitions   of   other   types  of 
negotiable  paper  may  prove  useful. 

The  word  "  bill"  wherever  used  heretofore,  means  "  Bill  of 
Exchange."  This  is  an  unconditional  written  order  from  one  per- 
son to  another,  directing  the  latter  to  pay  to  a  specified  person 
a  certain  sum  named  therein.  The  word  "  Draft "  is  more  com- 
monly used  for  the  same  thing. 

A  Bank  Note  is  a  promissory  note  payable  to  bearer  on  demand, 
issued  by  a  bank  under  authority  of  law,  and  used  as  a  circulating 
medium. 

A  Letter  of  Credit  is  a  letter  of  request,  whereby  one  person, 
usually  a  merchant  or  banker,  requests  some  other  person  to 
advance  money,  or  to  give  credit  up  to  a  certain  amount  to  a 
third  person  named  therein,  charging  it  to  the  writer's  account. 
This  is  a  scheme  much  used  by  travelers,  who,  before  leaving  the 
home  country,  purchase  such  a  letter  of  a  domestic  banker  who 
has  correspondents  abroad.  Such  an  instrument  is  not  negotiable 
in  the  usual  sense. 

A  Bill  of  Lading  is  a  written  acknowledgment  by  a  carrier  that 
he  has  received  the  goods  for  shipment  by  land  or  water.  It  is 

244 


NEGOTIABLE    PAPER  §389 

also  a  contract  for  such  transportation,  and  a  contract  to  make 
delivery  to  the  person  named  in  the  receipt,  or  to  his  order.  A 
bill  of  lading  is  not  so  perfectly  negotiable  as  a  promissory  note  or 
check,  but  yet  passes  freely  from  hand  to  hand.  Many  non- 
negotiable  bills  are  issued,  however. 

Should  opportunity  present,  the  student  is  advised  to  pursue 
this  subject  of  Negotiable  Paper  further  under  the  topics :  Altera- 
tions, Defenses,  Rights  under  Overdue  Paper,  Holder  in  Due 
Course,  etc.,  etc. 


245 


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246 


QUESTIONS 

Questions  on  Chapter  VIII 
NEGOTIABLE  PAPER 

1.  What  is  meant  by  the  "  law  merchant  "?     How  is  it  estab- 
lished? 

2.  Explain  why  the  engineer  should  be  familiar  with  the  general 
rules  of  the  law  merchant. 

3.  What  is  meant  by  "  negotiable  paper "?     How  is  modern 
business  largely  done? 

4.  Distinguish  between  negotiability  and  assignability. 

5.  Enumerate  the  essentials  to  negotiability. 

6.  How  have  these  essentials  become  recognized? 

7.  Explain  carefully  the  meaning  of  rule  No.  2. 

5.    "  To  pay  a  definite  sum"  —  elaborate  upon  this  rule. 

9.  What  is  meant  by  "  fixed  or  determinable  time  "?    State  the 
effect  of  a  contingency. 

10.  "  Words  of  negotiability"  — give  meaning  and  importance. 

11.  Explain  meaning  of  rule  No.  5  as  to  certainty  of  persons. 

12.  State  carefully  who  can  make  negotiable  instruments. 

13.  What  are  a  corporation's  powers  with  reference  to  issuing 
negotiable  paper? 

14.  How  must  an  agent  sign  to  relieve  himself  of  responsibility? 

15.  Why  are  fiduciaries  not  allowed  to  bind  their  trusts  by  notes? 

16.  What  is  the  rule  as  to  effective  signing?     How  made? 

17.  Suppose  signing  is  in  a  trade  name,  —  what  result? 

18.  What  effect  does  a  partner's  signing  have? 

19.  Recite  upon  joint  signing. 

20.  What  is  the  result  if  a  signature  is  induced  by  fraud?     Or  by 
mistake? 

21.  When  is  it  necessary  to  date  a  note?     Why? 

22.  What  is  effect  and  importance  of  words  "  Value  received  "? 

23.  What  is  the  essential  element  of  delivery? 

24.  Explain  delivery  in  escrow.     What  is  the  test  question? 

25.  What  are  the  liabilities  of  one  who  makes  a  negotiable  in- 
strument? 

26.  Name  four  different  ways  in  which  the  maker  may  he  dis- 
charged. 

27.  Explain  carefully  the  whole  matter  of  "  Dishonor." 

28.  What  is  the  purpose  of  "  accommodation  paper  "? 

29.  What  is  the  liability  of  an  accommodation  party? 

247 


CONTRACTS 

SO.   What  is  effect  of  indorsement?     How  accomplished? 

31.  Name  the  different  indorsements. 

32.  Which  is  better,  indorsement  "  in  full,"  or  "  in  blank  "f 
Tell  why. 

33.  What  is  the  effect  of  a  restrictive  indorsement?    Made  when\ 

34.  What  does  an  indorser  warrant? 

35.  Under  what  conditions  is  the  indorser  discharged? 

36.  What  is  the  purpose  of  the  rules  governing  negotiable  paper? 
How  accomplished? 

37.  Explain  presentment  of  a  bill  or  note.     What  points  must  be 
observed? 

38.  What  is  the  use  of  a  judgment  note?     Why  or  when  would 
you  prefer  one? 

39.  What  are  the  rules  as  to  presentment  of  checks? 

40.  What  is  meant  by  "  Protest  "?     By  "  No  Protest  "? 

41.  What  is  the  bank's  duty  as  to  checks? 

42.  What  is  the  purpose  of  certified  checks?     Do  they  fulfill  it? 

43.  What  are  bonds  used  for?     By  whom? 
44'  Mention  oilier  kinds  of  mercantile  paper, 


248 


QUESTIONS 

QUESTIONS  FOR  GENERAL  REVIEW 

1.  A,  about  to  build,  engages  an  independent  contrator,  B,  to 
put  in  foundations   requiring  considerable   blasting  in   rock.     In 
doing  this  X's  adjacent  building  is  seriously  damaged.     Has  X  any 
action  for  damages?     (a)   If  so,   against  whom?    State  why.     (b) 
Give,  if  you  can,  any  possible  exceptions  to  your  rule. 

2.  A  and  B  own  all  the  stock  in  the  X  corporation,  and  in  their 
own  names  execute  a  deed  of  real  estate  belonging  to  it.     (a)  Does 
the  title  pass?     Explain  why,  or  why  not.     (b)  Explain  "  ultra 
vires  "  and  tell  if  it  applies  here. 

3.  Enumerate  leading  statutory  restrictions  to  which  engineering 
contracts  must  commonly  be  made  to  conform,     (b)  Illustrate  what  is 
meant  by  "  gratuitous  promises." 

4.  In  law  of  sales,  explain  what  is  meant  by  "  reservation  of 
jus  disponendi."     When   and  for  whose   benefit  is  the  principle 
applied? 

5.  A  says  to  B,  "I  will  put  in  your  cellar  wall  for  §250,"  and 
B  replies,  "All  right."     When  work  is  three-quarters  done  there  is  a 
dispute  as  to  quality  of  stone  for  top  courses,  and  A  is  ordered  to  quit 
the  job.     B  refuses  to  pay  for  the  work  done,  arguing  (a)  there  was 
no  binding  contract,  and  (b)  if  there  was  a  contract,  it  has  been 
breached  by  reason  of  A's  not  doing  the  work  to  his  satisfaction.    Dis- 
cuss the  rights  of  the  parties,  naming  the  principles  involved. 

6.  Illustrate  proper  and  improper  delegation  of  authority,  in 
agency. 

7.  Explain  meaning  and  quality  of  estate  called  "  fee   simple." 
(b)    Upon  what  theory  or  principle  does  "  title  by  adverse  possession  " 
rest? 

8.  The  great  majority  of  lawsuits  by  contractors  arise  over  exca- 
vation, or  meeting  unexpected  difficulties  in  foundations,  or  because 
changes  in  plans  are  required.     State  clearly  how  you  would  pro- 
vide against  these  troubles. 

9.  A  orders  of  B  a  water-wheel  of  peculiar  style  not  usually  kept 
in  stock  nor  available  for  general  trade.      Upon  completion,  A  re- 
fuses to  accept  it.     If  the  contract  was  not  in  writing,  can  B  collect? 
Give  your  reasoning.     The  value  of  the  wheel  is  §800. 

10.  What  do  you  consider  to  be  the  leading  principle  studied  by 
you  under  the  law  of  agency?     Cite,   if  possible,   an  illustrative 
instance. 

11.  (a)  State  leading  analogies  and  differences  between  partner- 
ships  and   corporations,     (b)  What   has    led   to   the   "  corporation 
habit  "f 

12.  A.  B.  &  Co.,  makers  of  high-lift  diaphragm  pumps  place  some 
on  1 0-day s  trial  in  the  sewer  trenches  of  X,  contractor.      He  is  not 
satisfied  of  their  fitness  within  that  time,  but  a  week  later  decides  he 

249 


CONTRACTS 

does  not  want  them.  The  A.  B.  Co.  refuses  to  take  them  back —  and 
sues  him  for  the  price,  (a)  What  type  of  contract  is  this?  (b)  Must 
X  pay?  (c)  When  did  title  pass,  */  at  all? 

13.  The  area  of  very  valuable  city  property  is  in  dispute,  in  a 
suit  to  enforce  the  sale  of  it.     The  work  of  seller's  surveyor  has 
error  of  closure — 1:1,000,  while  a  survey  by  adverse  party  shows 
error  of  1:18,000.     The  difference  in  value  by  the  two  surveys  is 
§2800.     Argue  for  the  side  you  believe  entitled  to  win. 

14.  Define  "  proximate  cause,"  stating  where,  when,  with  what 
effect,  and  under  what  circumstances  the  rule  is  applied. 

15.  (a)  Compare  mode  of  origin  of  common  law,  and  of  statutes. 
(b)  Which  has  precedence?     (c)   Tell  which  you  prefer  to  study, 
giving  reasons. 

16.  A  was  agent  of  the  M  Fire  Insurance  Co.,  and  made  out  a 
policy  on  T's  building.     It  was  printed  in  the  policy  that  it  should  be 
void  if  gasolene  was  kept  in  the  building  without  written  permission 
in  the  policy.     T  represented  that  it  was  necessary  for  him  to  have  a 
small  amount  of  gasolene  about,  and  to  induce  him  to  take  the  policy, 
A  wrote  the  desired  permission  into  it,  though  he  had  no  authority  to 
do  so.     The  building  was  burned,  and  the  Insurance  Company  re- 
fused to  pay  on  the  ground  that  the  policy  was  avoided  by  the  keeping 
of  gasolene.     What  rights,  if  any,  has  T  against  A? 

17.  When  parties  are  negotiating  by  mail  under  what  circum- 
stances does  the  mailing  of  a  letter  rather  than  its  receipt  fix  the 
rights  of  the  parties? 

18.  What  is  a  principal's  liability  for  the  willful  torts  of  his 
agent? 

19.  Suppose  A  draws  a  check  for  a  large  sum  on  the  B  bank, 
payable  to  C,  who  does  not  present  it  for  two  years.     In  the  mean- 
time the  bank  fails  and  can  pay  only  50  cents  on  the  dollar.     C  then 
sues  A  for  the  balance  of  the  face  of  the  check,     (a)  Can  he  recover, 
and  if  so,  how  much? 

(b)    If  bank  still  were  solvent,  how  much  could  C  recover,  if 
anything? 

20.  The  stockholders  of  The  Western  Contracting  Company,  a 
corporation,  desire  to  effect  its  dissolution.     How  shall  they  go  about 
it? 

Suppose  it  had  been  a  partnership,  with  X,  Y,  and  Z,  as  part- 
ners? 

21.  In  1880  A  and  B  owned  adjoining  lots.     In  1881  C,  by  deed, 
granted  to  D  both  these  lots.     D  occupied  openly  and  without  inter- 
ruption one-half  of  A's  lot  until  1905,  claiming  to  own  both  lots.     E, 
in  1884,  entered  upon  A's  lot  and  occupied  the  other  half  openly, 
and  under  a  claim  of  right,  until  1905.     The  statute  of  limitations 
runs  for  20  years.     Who  owned  the  lots  in  1905? 

22.  A  plotted  land  into  houselots  and  streets.     The  public  used  the 

250 


QUESTIONS 

streets  for  twenty  years.  The  streets  were  never  accepted  by  vote  of 
the  town.  B  was  injured  by  reason  of  a  deject  in  one  of  them,  and 
sued  the  town.  Should  he  recover?  Give  your  reasons. 

23.  A  agreed  to  build  a  house  for  B,  for  which  B  was  to  pay 
§5,000.  After  the  house  was  partially  built,  A  said  to  B,  "  /  wont 
complete  your  house  for  less  than  $6.000  because  the  price  of  lumber 
and  materials  has  sharply  advanced."  B  promised  to  pay  the 
$6,000.  Can  A  get  the  whole  sum  upon  completing  the  house?  Why, 
or  why  not? 

24-  Damages  are  caused  to  adjacent  lands  by  the  pumping 
out  of  underground  waters.  Can  the  owner  of  the  land  obtain 
damages  from  the  city  which  operates  the  pumping  station? 

25.  A  contractor  agrees  to  erect  a  ten-story  office  building,  at 
a  cost  of  $500,000.     When  excavations  are  made,  the  contractor  finds 
that  the  soil  will  not  sustain  such  a  building  unless  extraordinary 
foundations  are  laid,  at  a  cost  of  §75,000.     The  contractor  refuses 
to  go  on  with  the  work,  as  he  says  it  will  ruin  him  to  complete  it  for 
the  price  agreed  upon,     (a)   Has  the  owner  any  grounds  for  a  suit 
against  the  contractor?     (b)  What  can  be  done? 

26.  The  city  has  raised  the  grade  of  a  street  several  feet  in  front 
of  A's  house.     Can  he  collect  damages?    If  so,  of  whom? 

27.  A  firm  contracted  with  a  city  to  lay  brick  pavements  and  to 
receive  city  bonds  in  payment.     During  the  progress  of  the  work 
the  city  discovers  that  its  debt  limit  will  not  permit  the  issuance  of 
such  bonds.     It  orders  the  work  stopped  and  the  city  treasurer  asserts 
that  he  has  no  authority  to  pay  for  any  part  of  the  work.     Can  the 
Contractor  recover? 


251 


CHAPTER  IX 
ENGINEERING  CONTRACT-WRITING 

Probably  a  chief  reason  why  engineering  contracts  and  specifications  so  often 
bear  bad  fruit  in  contentions,  lawsuits,  and  unsatisfactory  work  is  that 
their  writers  did  not  fully  perceive  the  objects  and  purposes  of  them,  or 
did  not  appreciate  the  arduous  professional  and  business  preparation 
which  an  adequate  discharge  of  the  task  imposes.  This  chapter  seeks  to 
illuminate  these  points  by  analyzing  and  discussing  a  few  of  the  numerous 
points  covered  in  modern  [contracts  for  important  works  using  actual 
examples  for  illustration.  It  is  attempted  to  show  what  matters  may  be 
properly  treated  in  the  "  covenants,"  in  the  "  general  clauses,"  and 
in  the  "specifications."  There  is  true  economy  in  good  specifications. 
If  the  reasons  for  imperfect  specifications  are  stated,  they  can  be  avoided 
in  a  measure  at  least.  Danger-signals  should  be  displayed  while  penal- 
ties, liquidated  damages,  extras,  and  blanket  clauses  relating  to  the 
engineer's  authority  are  under  discussion.  There  is  a  rational  method 
of  studying  specifications  by  first  reducing  each  and  every  clause  to  its 
lowest  terms,  and  then  expressing  it  over  a  common  denominator  of 
justice  and  common  sense.  These  and  numerous  other  details  are  the 
matters  treated  in  this  chapter.  It  is  placed  at  the  end  of  the  book  be- 
cause as  was  said  at  the  beginning,  the  complexities  of  engineering  con- 
tracts are  so  great  that  the  engineer  can  wisely  attack  the  problem  of  pre- 
paring them  only  after  an  exacting  study  of  the  bulk  of  the  material 
this  book  contains. 

391.  Introduction.  —  Hitherto  we  have  studied  contracts  of 
varying  types,  analyzing  their  essentials  and  remarking  upon 
their  typical  differences.  The  average  engineer,  however,  deals 
mostly  with  a  special  type  —  contracts  for  erecting  engineering 
structures.  "  Business  "  contracts  he  may  meet  less  often,  yet 
studying  them  has  a  positive  value  in  familiarizing  him  with  their 
origin  and  practical  usefulness.  It  will  also  assist  him  to  grasp 
more  perfectly  and  promptly  the  full  scope  and  significance  of  an 
engineering  contract. 

Such  a  preliminary  study  is  in  fact  necessary  for  a  proper  under- 
standing of  an  important  construction  contract  because  such  an 
agreement  often  establishes  the  rights  of  a  far  greater  number  of 
persons  than  does  the  average  "  business  "  contract;  moreover 
there  are  defined  under  it  a  greater  variety  of  operations  to  be 
performed,  under  conditions  much  less  determinate  beforehand. 
And  if  this  is  true  as  regards  comprehending  engineering  contracts 

252 


ENGINEERING   CONTRACT-WRITING  §  393 

when  their  execution  has  been  or  is  about  to  be  entered  upon, 
with  how  much  greater  force  does  it  apply  when  the  engineer  is 
called  upon  to  compose  and  draft  such  an  instrument. 

Frequently  legal  counsel  will  be  employed  to  frame  the  more 
formal  part  of  important  construction  agreements  (commonly 
but  erroneously  called  the  contract,  or  "  the  legal  part  ")  which 
part  is  properly  designated  as  the  "  covenants/ '  or  "  General 
Conditions."  Then  the  engineer  will  be  called  upon  to  furnish  the 
part  dealing  more  particularly  with  the  technicalities  of  engineer- 
ing practice,  —  the  "  specific  clauses  "  or  "  specifications."  The 
term  "  contract,"  properly  used,  includes  specifications  and  cov- 
enants, and  there  is  no  clear  line  of  demarcation  between  them, 
as  many  matters  inserted  in  the  covenants  by  some  engineers  are 
by  others  as  frequently  placed  in  the  specifications. 

It  will  be  seen,  therefore,  that  whether  the  engineer  is  called 
upon  to  furnish  the  "  contract  and  specifications  "  in  whole  or  in 
part,  the  more  thoroughly  he  grasps  the  law  of  contracts  generally 
the  more  ably  will  he  work  alone  in  the  matter  or  co-operate  with 
a  legal  assistant.  Having  thus  sought  to  show  the  relation  of 
engineering  "  contracts  and  specifications  "  to  our  whole  subject, 
let  us  consider  some  of  their  prominent  features  after  which,  it  is 
hoped,  we  may  attempt  contract  writing  with  an  intelligent 
appreciation  of  the  major  problems  before  us. 

392.  LANGUAGE    USED.  —  The  idea  is  common  that  the 
contract  must  be  framed  in  technical  legal  language  if  it  is  to 
be  effective.     Perchance  there  is  thought  to  be  some  cabalistic 
mysticism  in  the  uncouth  legal  terminology  often  employed,  and 
the  potency  is  supposed  to  be  marred  or  lost  if  the  forms  of  these 
phrases  are  varied.    But  a  little  thought  will  show  this  view  cannot 
be  true,  for  the  reason  that  the  language  used  in  the  contract 
is  naturally  taken  to  be  the  best  evidence  of  the  real  intention  of 
the  parties  —  hence  if  they  intend  the  ordinary  and  usual  business 
relations  should  they  not  strive  to  express  themselves  in  the 
simplest  and  most  business-like  English  possible? 

393.  Further,    if    the    document    must,    unfortunately,    be 
brought  into  court  to  receive  judicial  interpretation,  it  should  be 
remembered  that  those  who  compose  the  tribunal  are  every-day 
individuals,  trained  in  and  using  all  the  common  idioms  of  our 
language,  just  as  did  those  whose  will  and  intention  the  contract 
is  supposed  to  register.    As  the  Court  proceeds  to  sift  wheat  from 

253 


§  394  CONTRACTS 

chaff  in  the  mass  of  verbiage  often  employed,  it  will,  perforce, 
employ  the  fixed  legal  rules  of  evidence  and  also  the  more  elastic 
ones  of  "  construction  "  already  discussed  at  length  (see  §§  80- 
91);  but  it  is  obvious  that  the  more  simply,  explicitly,  and  cor- 
rectly the  parties  have  expressed  themselves,  the  shorter  and 
more  satisfactory  the  Court's  task  will  be. 

394.  In  accord  with  the  above,  it  is  evident  that  specifications 
also    should    be    written   in   plain    language.     Verbs   should   be 
properly  placed  with  reference  to  their  subjects  and  objects,  and 
should  be  completely  formed.     All  matters  logically  related  to 
one  another  should  be  grouped,  so  far  as  possible,  as  this  allows  the 
spirit  of  each  and  every  complete  sentence  composing  the  cor- 
related paragraphs  to  be  carried  in  the  mind  of  the  reader.     If 
this  is  done  the  necessary  implications  of  the  language  used  will 
(perhaps  unconsciously)  serve  to  buttress  and  reinforce  the  mean- 
ing of  those  sentences  which  both  follow  and  precede  the  given 
statement.     The  net  result  will  be  clarity  and  forcefulness.     But  if 
cognate  matters  cannot  easily  be  grouped,  if  a  point  has  once  been 
set  for  that  length  it  may  subsequently  be  re-incorporated  in  the 
proper  places  by  reference  to  the  former  section.    (See  §§  405-6.) 

395.  Length.  —  It   has   been   said    that    though    brevity   is 
the  soul  of  wit,  this  literary  criticism  should  be  sparingly  applied 
to  specification  writing.     Here,  as  elsewhere,  true  art  is  to  be 
found  in  the  golden  mean  of  expression.     On  the  one  hand  mere 
garrulity  and  verbiage  is  to  be  studiously  avoided;  on  the  other, 
a  cardinal  tenet  is,  "  Let  nothing  be  taken  for  granted." 

396.  Complete  specifications  for  important  work  must  neces- 
sarily be  very  comprehensive,  yet  it  does  not  follow  that  they 
cannot  be  set  forth  in  language  and  phraseology  easily  under- 
stood.    It  is  sometimes  said  that  a  comma  will  not  be  allowed  to 
spoil  a  contract,  but  the  careless  misplacing  of  one  has  often  cast 
ambiguity  on  whole  sections  of  a  document.     It  should  be  noted, 
too,  that  while  the  author  of  a  literary  masterpiece  may  clothe  a 
unity  of  thought  in  a  variety  of  expressions,  the  task  of  contract 
writing  must  be  approached  differently.     Thus  a  repetition  of 
the  same  words  and  phrases  wherever  they  properly  arise  is  a  dis- 
tinct step  toward  clarity  and  certainty  of  meaning,  while  the  at- 
tempt to  say  the  same  thing  a  little  differently  each  time  is  a  cause 
of  needless  doubt  and  ambiguity.    Almost  invariably  the  law 
exhibits  the  tendency  in  expression  to  sacrifice  brevity  for  cer- 

254 


ENGINEERING   CONTRACT-WRITING  §  398 

tainty  by  piling  up  synonyms,  or  modifying  words  of  almost  equal 
significance.  This  is  the  reason  for  the  archaic  and  non-colloquial 
language  and  phraseology  often  exhibited  by  legal  documents. 

397.  PURPOSE  OF  SPECIFICATIONS.  —  "  The  specifica- 
tions and  drawings  together  must  give  the  contractor  a  clear  and 
complete  knowledge  of  the  work  he  is  to  perform  and  the  materials 
he  is  to  furnish,  and  should  contain  all  the  information  necessary 
to  permit  him  to  make  an  accurate  estimate  in  advance,  and  to 
carry  out  the  work  properly,  once  it  is  undertaken.     The  speci- 
fication is  a  general  statement  of  the  work  to  be  performed,  a 
description  of  the  materials,  the  quality  required,  and  the  class 
of  workmanship  to  be  performed,  with  definite  limits  as  to  what 
tests  must  be  made  in  order  to  determine  compliance  with  the 
requirements  of  the  contract,  or  what  defects  would  be  sufficient 
cause  for  rejection. 

"  Specification  writing  is  an  art  which  cannot  be  acquired  suc- 
cessfully without  practice  and  without  broad  knowledge,  practical 
experience,  a  careful  study  of  the  various  materials  and  methods 
of  construction,  and  familiarity  with  their  relative  costs.  As 
ideas  and  methods  change  and  improve  as  a  result  of  experience, 
so  specifications  should  be  changed  to  keep  abreast  of  the  times."  * 
For  a  further  development  of  these  points,  see  Appendix  Note  17, 
"  Objects  of  Specifications." 

398.  Engineer's  Preparation.  —  A  certain  degree  of  prepara- 
tion is  a  prerequisite  for  the  successful  undertaking  of  any  work, 
and  even  with  painstaking  care  mistakes  will  sometimes  occur. 
Mr.  J.  A.  L.  Waddell,  the  eminent  consulting  engineer,  says:  f 

"  To  insure  that  all  requirements  have  been  met,  it  is  evident  that  the 
engineer  must  familiarize  himself  with  every  detail  of  the  work  in  hand.  If 
he  does  not  understand  it  himself,  it  is  certain  he  will  not  get  a  clear  idea  of 
what  he  wants  into  the  mind  of  another.  And  even  when  the  details  of  a 
scheme  are  perfected  in  the  engineer's  mind,  it  is  difficult  sometimes  to  make 
it  plain  to  a  contractor." 

Errors  of  judgment  are  easy  to  fall  into,  even  by  those  mentally  alert, 
so  that,  as  Mr.  Waddell  puts  it,  "A  given  proposition  may  appear  to  the  en- 
gineer in  his  office,  prior  to  commencing  work,  very  different  from  what  he 
finds  in  the  field  after  construction  has  begun.  When  the  engineer  discovers 
he  has  made  a  mistake  he  should  not  hesitate  to  acknowledge  it,  and  to  set 
about  as  best  he  may,  to  correct  the  error.  To  reduce  mistakes  to  a  minimum 
the  engineer  must  be  thoroughly  conversant  with  all  contingencies  likely  to 
arise  in  the  execution  of  the  work,  but  yet  he  should  lose  no  opportunity  to 
check  against  mathematical  errors.  He  should  familiarize  himself  with  the 
appliances  ordinarily  employed,  and  should  so  design  his  work  that  their  use 

*  Bamford,  Proc.  Am.  Soc.  C.  E.  XXXV,  1323. 
t  Spec.  &  Contracts,  Waddell  &  Wait,  p.  7. 

255 


§  399  CONTRACTS 

will  not  be  prohibited.  And  in  writing  his  specifications  and  in  making  his 
plans  he  should  have  a  clear  and  complete  mental  picture  of  just  what  he  is 
striving  to  attain." 

399.  Then   there   is   the  distinctly   business   aspect    of   the 
engineer's   task.     While   a   considerable   part   of  the   covenants 
(§  401)  deal  with  matters  for  which  a  knowledge  of  busines  rela- 
tions is  essential,  and  the  specific  clauses  dealing  with  the  design 
and  details  of  construction  are  the  part  wherein  the  engineering 
education  of  the  writer  is  most  effective,  yet  it  hardly  seems  fair 
to  have  it  said  that  the  "  contract  "  calls  for  legal  services  in  its 
preparation,  while  specification  writing  is  wholly  and  solely  within 
the  purview  and  training  of  the  engineer.    A  truer  view  would 
seem  to  be  that  if  an  engineer  is  to  be  a  good  contract  writer  he 
should  be  thoroughly  grounded  on  business  principles  (§  5),  and 
that  it  is  only  the  subdivisions  of  specifications  dealing  with 
materials  and  methods  which  pertain  distinctively  to  the  engineer- 
ing field. 

400.  Engineer's  Duty  to  Prevent  Lawsuits.  —  It  is  undeniable 
that  lawsuits  brought  by  contractors  are  often  occasioned  through 
the  fault  of  the  engineer.    Some  writers  go  farther  and  even  blame 
the  dishonesty  of  certain  contractors  also  upon  the  engineers. 
If  this  indictment  is  true,  it  is  doubtless  because  of  an  overzeal 
on  the  engineer's  part  in  striving  to  protect  his  client's  interests,  and 
not  because  he  deliberately  intends  to  wrong  the  contractor.     In 
any  event,  it  is  certain  that  lawsuits  are  the  fruit  of  ill-prepared 
specifications,  and  are  the  inevitable  sequence  to  the  employment 
of  the  class  of  contractors  which  such  ill-made  specifications  breed. 
(See  Appendix  Note  18,  "  True  Economy  in  Good  Specifications.") 

Therefore  the  engineer  owes  a  moral  duty  to  his  client  and  to 
his  profession  to  be  thoroughly  informed  upon  both  the  technical 
and  legal  requirements  of  his  task  as  the  writer  of  an  enginnering 
contract  and  its  specifications.  (See  §  398.)  Experience  has 
amply  shown  that  where  competent  engineers  have  worked  out 
good  specifications  in  a  given  line  of  work,  in  such  cases  lawsuits 
on  behalf  of  contractors  are  at  a  minimum.* 

401.  COVENANTS  OR  "  GENERAL  CONDITIONS  "  DIS- 
CUSSED. —  A  construction  contract  is  for  convenience,  divided 
into  two  parts,  covenants  or  general  conditions  and  specifications. 

*  See  Appendix  Note  19.  "  Trouble  Breeders,"  and  "  Political  Con- 
tracts." 

256 


ENGINEERING    CONTRACT-WRITING  §  402 

The  matters  usually  treated  under  covenants  are  such  as  the 
contractor's  liability;  the  consideration  in  the  contract;  provisions 
for  payment;  reference  to  accident  liabilities;  the  responsibility 
for  negligence ,  and  provisions  relative  to  the  default  or  delay  of 
either  party.  Here  also  will  be  found  provisions  relative  to  sub- 
letting; liens;  and  statutory  requirements;  description  of  the 
parties,  giving  their  residence,  and  if  one  is  a  corporation,  its 
domicile  and  place  incorporation.  There  should  also  be  reference 
to  any  other  instruments,  such  as  ordinances  or  franchises  in- 
tended to  be  incorporated  (§  405)  and  made  a  part  of  the  contract, 
including  positive  reference  to  the  plans  and  specifications  under 
which  the  particular  work  is  to  go  forward.  It  may  be  necessary, 
also,  to  incorporate  the  special  Acts  of  Legislature  or  other  public 
body  under  and  by  virtue  of  which  the  contract  is  made  and 
carried  out. 

402.  Whether  a  given  topic  goes  into  the  covenants  or  speci- 
fications depends  largely  upon  the  engineer's  ideas  of  propriety. 
Such  clauses  as  pertain  to  adherence  to  the  specifications,  altera- 
tion of  plans,  damages,  extras,  payments,  responsibility  for 
accidents,  inspection,  scope  of  contract,  and  time  of  completion  are 
properly  placed  under  either  heading.  Clauses  that  relate  to 
methods  of  construction,  qualities  of  materials,  character  of  the 
work,  and  the  rules  limiting  the  power  and  functions  of  the  con- 
tractor and  defining  the  authority  of  the  engineer  are  proper  in 
the  specifications.  Yet  this  discussion  is  in  a  measure  academic, 
since  the  important  thing  is  that  so  long  as  provisions  of  real  im- 
portance are  inserted  anywhere  in  the  document  they  will,  if  not 
contradictory,  inconsistent,  or  ambiguous,  be  given  their  due 
weight  and  value  by  a  court  of  law  in  determining  the  rights  and 
responsibilities  of  the  parties. 

Because,  however,  any  large  matter  may  be  more  thoroughly 
and  comprehensively  treated  if  taken  up  systematically  and 
according  to  a  well-considered  plan,  the  preparation  of  a  contract 
(see  §  398)  for  a  large  work  will  amply  justify  the  expenditure  of 
considerable  time,  effort,  and  money  to  secure  the  requisite  thought 
and  care  in  the  content,  arrangement,  and  sequence  of  its  parts. 
Contract-writing  is  something  of  an  art,  whose  importance  to 
engineers  generally  can  hardly  be  overestimated,  for  if  the  con- 
tract is  clumsily  or  inaccurately  drawn  there  is  almost  certain  to 
be  serious  loss  and  trouble. 

257 


§  405  CONTRACTS 

405.  INCORPORATION  BY  REFERENCE.  —  It  has  been 
stated  that  the  covenants  and  specifications  may,  in  a  given  case, 
easily  and  properly  become  quite  voluminous,  yet  a  principal 
objective  point  of  the  present  argument  is  that  bulkiness  should 
not  and  need  not  produce  ambiguity.  (See  §§  392-6.)  As  it 
is  admittedly  proper  to  make  all  reasonable  efforts  to  condense 
and  shorten  the  statements  without  sacrificing  their  full  import, 
the  importance  of  the  legal  doctrine  of  "  Incorporation  by  Ref- 
erence "  is  evident. 

"  Incorporation  by  Reference  "  refers  to  the  legal  effect  of 
making  an  instrument  in  writing  (or  of  course  in  print)  a  part  of 
another  by  referring  to  the  first  document  in  such  a  way  as  to 
adopt  its  provisions,  thus  making  them  a  part  of  the  second  docu- 
ment. The  usefulness  of  this  scheme  is  apparent,  and  while  it 
does  not  quite  fall  among  the  rules  considered  under  "  construc- 
tion of  contracts  "  (§§  80,  et  seq.)  cases  are  common  where  other 
writings  (whether  directly  referred  to  or  not)  will,  if  studied,  throw 
great  light  on  the  contract  in  hand.  If,  therefore,  such  other 
writing  is  in  its  meaning  and  effect  incorporated  by  direct  reference 
into  it,  the  result  of  the  interpretation  of  the  present  contract 
will  be  more  simple,  certain,  and  satisfactory.  It  is  a  well- 
established  principle  that  mere  reference  is  effectual  (as  by  using 
the  words  "  the  same  is  hereby  made  a  part  of  this  contract  ")• 
Hence  the  labor  of  rewriting  all  the  terms  of  the  first  instrument 
is  thereby  saved. 

Familiar  instances  are  where  contracts  are  entered  into  by  authority  of 
a  special  Act  of  Legislature.  Complete  proof  that  the  party  is  "  competent  " 
is  afforded  by  incorporating  the  instrument  conferring  the  authority  into  the 
contract,  as  by  reference  to  the  appropriate  year,  chapter  and  section-number 
in  the  statute  book. 

This  is  also  similar  to  the  practice  of  incorporating  former  deed-descrip- 
tions into  current  deeds  of  land,  by  reference  to  the  date,  place  of  registry, 
volume  and  page  number  on  which  a  record  of  the  earlier  deed  may  be  found. 

406.  It  is  of  great  importance  that  the  document  referred  to 
be  positively  identified.  It  must  also  be  in  actual  existence  at 
the  time  the  contract  is  made.  Reference  to  a  contract  or  writing 
"to  be  prepared  "  at  a  future  time,  is  ineffective.  Where  the 
matter  to  be  incorporated  is  in  some  printed  form,  of  which  there 
are  numerous  copies  extant  and  in  circulation,  the  task  will  be 
simple  enough.  In  the  absence  of  such  a  condition,  the  safe 
though  laborious  way  is  to  incorporate  the  first  document  entire. 

258 


ENGINEERING   CONTRACT-WRITING  §  409 

There  will,  of  course,  be  found  all  shades  of  circumstances  between 
these  two. 

407.  PHYSICAL  INCORPORATION.  —  It  is  a  good  and 
practical  way  to  have  the  plans,   specifications  and  covenants 
bound  and  fastened  together  as  a  physical  whole,  and  then  in  each 
part  refer  to  the  others  as  "  hereto  attached."     Mr.  Wait  says, 
"  Frequently  specifications  and  plans  are  referred  to  as  signed 
and  attached,  when  in  fact  they  have  not  been  signed  and  at- 
tached.    In  such  cases  oral  evidence  may  be  introduced  to  show 
what  specifications  were  intended.     //  they  can  be  identified,  they 
are  in  legal  effect  incorporated  into  the  contract."     It  will  be 
noticed   that   this   statement   introduces   the    bothersome   legal 
question  of  proof  by  oral  evidence,  and  the  necessity  for  this 
should  be  obviated  if  possible.     "  Drawings  exhibited  to  a  con- 
tractor, when  a  contract  is  signed,  if  referred  to  in  the  contract 
so  as  to  be  identified  [as  by  number,  date,  and  signature],  become 
a  part  of  the  contract,"  he  says  further,  but  here  again  oral  proof 
is  necessary.     Also,  it  is  pointed  out  that  an  Act  of  Congress  may 
be  made  a  part  of  a  contract  by  reference;  and  so  also,  plans,  pro- 
files and  drawings,  may  become  part  of  an  Act  of  Legislature, 
though  it  is  noteworthy  that  if  the  Act  does  not  itself  refer  to  them 
they  cannot  thereafter  be  used  in  construing  the  Act. 

408.  In  leaving  this  topic,  it  is  well  to  note  that  while  con- 
tracts and  their  attendant  specifications  may  amount  to  hundreds 
of  pages  of  printed  matter  in  book  form,  into  which  sizable  books 
may  be  incorporated  by  reference,  yet  at  the  other  end  of  the 
scale  they  may  consist  of  a  not  very  lengthy  letter,  or  of  a  mere 
sketch  which  describes  the  materials  and  methods  which  are  to  be 
employed.    (Wait,  same  reference.)     The  important  fact  above  all 
others  is  that  the  whole  body  of  contract  law  will  apply  to  each 
and  every  such  contract,  be  its  length  two  or  two  hundred  pages. 

PRACTICAL  SUGGESTIONS  FOR  GENERAL 
CONDITIONS  CLAUSES 

409.  In   1909  a  committee  representing  six  of  the  leading 
railroads  of  the  country  reported  to  the  American  Railway  En- 
gineering and  Maintenance  of  Way  Association  on   "  Uniform 
General  Contract  Forms."  *    While  the  task  of  the  committee 

*  See  Bulletin  108,  Amer.  Ry.  Eng.  &  M.  W.  Assn.,  February,  1909. 

259 


§  410  CONTRACTS 

was  "  to  prepare  a  brief  form  of  general  contract  applicable  to  all 
classes  of  railroad  work  "  their  report  is  chiefly  confined  to  out- 
lining recommended  components  for  such  a  Uniform  General 
Contract  Form.  That  is,  they  enumerate  the  matters  which  it  is 
agreed  belong  in  a  contract  form  designed  to  have  general  adapta- 
bility for  railroad  work,  and  rather  carefully  group  and  classify 
them.  This  report  comes  from  a  body  of  men  familiar  with  the 
needs  of  this  important  field  of  construction  work.  Against  them 
the  charge  of  theorizing  upon  the  subject  certainly  will  not  lie, 
hence  it  will  be  advantageous  to  the  student  or  engineer  seeking 
positive  data  if  this  committee  is  quoted  extensively  here,  and  its 
recommended  details  rather  freely  paraphrased. 

410.  For  purposes  of  study,  the  necessary  components  or  con- 
stituent parts  of  the  contract  are  by  them  placed  in  two  grand 
divisions,  with  numerous  subdivisions.     The  main  divisions  are: 

(A)  A  proper  agreement  form. 

(B)  A  statement  of  general  conditions  applicable  to  all  classes 
of  construction  operations. 

411.  (A)  is  amplified  into  seven  other  sub-headings.     Thus,  a 
proper  agreement  form  should  embody  : 

(1)  An  introductory  or  opening  clause. 

(2)  A  complete  enumeration  and  description  of  all  parties  to 
the  agreement. 

(3)  A  concise  description  of  the  subject  matter,  covering  the 
nature  and  location  of  the  work  to  be  performed. 

(4)  A  statement  of  the  time  when  (or  under  what  conditions) 
the  contract  becomes  operative  and  the  limit,  if  any,  for  its 
duration. 

(5)  An  enumeration  of  the  documents  which  accompany  the 
contract.     (§  405.) 

(6)  An  exact  statement  of  what  is  to  be  paid,  i.e.,  the  con- 
sideration. 

(7)  A  proper  form  of  attestation  ["  Attest  "  is  a  technical 
term,  signifying  the  witnessing  of  a  written  instrument  by  a  per- 
son who  formally  subscribes  to  that  fact],  which  should  include 
the  act  of  signing  by  all  the  parties  to  the  contract,  with  seals  if 
required,  and  witnesses  to  their  signatures.     If  the  contract  is 
required  to  be  recorded,  then  there  must  be  a  sufficient  execution 
and  acknowledgment  before  a  notary  public. 

260 


ENGINEERING   CONTRACT-WRITING  §  413 

412.  (B)  The  Statement  of  General  Conditions  should  cover 
the  general  stipulations  of  the  contract  [i.e.,  it  should  enumerate 
the  matters  upon  which  it  is  the  principal  object  of  the  contract  to 
effect  a  mutual  understanding  between  parties].     There  should  be 
distinct  reference  not  only  to  matters  which  of  necessity  must 
exist,  but  also  to  contingencies  that  would  materially  affect  the 
contract,  and  there  should  be  provisions  covering  the  procedure 
in  such  events. 

413.  [Thus  far  the  work  of  the  committee  may  be  supposed 
to  have  been  relatively  easy.    We  have  sought  to  show,  here- 
tofore,  that  anything  which  truly  represented   the   "  intention 
of  the  parties  "  (§81)  might  be  properly  embodied  into  a  bind- 
ing contract  (with  certain  qualifications).     It  is  perhaps  need- 
less to  say  that  almost  never  are  the   conditions  surrounding 
two    contracts   precisely  alike.     Thus  if  it  were  attempted  to 
develop  a  standard  form  to  be  used  invariably  for  any  given 
field  of  work,  it  would  almost  certainly  become  so  extremely  vol- 
uminous as  to  seriously  hamper  its  usefulness,  because  in  it  all 
sorts  of  variations  and  possible  emergencies  would  have  to  be 
provided  for.     In  such  a  standardized  form  there  might  be  many 
provisions  very  nearly  duplicating  each  other,  yet  be  so  repug- 
nant that  both  could  not  possibly  apply.     The  ambiguity  would 
then  arise  as  to  which  clause  did  express  the  intention  of  the 
parties. 

It  seems  that  the  committee  sensed  the  foregoing,  difficulties, 
as  they  report  that  they  spent  much  labor  in  analyzing  a  large 
number  of  contracts  in  use,  besides  consulting  the  available 
authorities.  They  found  a  great  variety  of  groupings  of  the 
matters  commonly  included  under  "  General  Conditions,"  but 
there  was  a  notable  lack  of  unity  in  the  order  of  arrangement  of 
these  matters  in  the  various  contracts  studied.  In  order  that  a 
railroad  construction  contract  could  be  prepared  in  a  systematic 
way,  they  therefore  suggested  that  there  should  be  twenty  main 
topics,  or  headings  under  which  the  various  "  General  Conditions  " 
should  be  grouped,  —  and  this  list  of  twenty  topics  may  be  a 
highly  valuable  one  for  the  engineer  to  check  off,  if  he  is  engaged 
in  writing  a  contract  for  almost  any  sort  of  construction  work. 
These  twenty  group  headings  for  "  General  Conditions  "  follow, 
but  as  each  of  the  twenty  is  subdivided  from  five  to  twenty-five 
times,  the  author  summarizes  and  paraphrases  (for  brevity)  the 

261 


§  414  CONTKACTS 

most  important  of  them.     He  also  adds  comments  which  may 
prove  helpful  to  the  student.] 

414.  (l)  Contractor's    Understanding.  —  [In    the    expanded 
form  of  this  heading,  the  meaning  is  seen  to  be  that  by  signing  the 
contract,  the  contractor  warrants  that  he  fully  understands  the 
following  matters.     That  is,  if  he  does  not  in  fact  understand  them, 
yet  he  has  waived  his  right  to  claim  that  he  misunderstood  them, 
or  to  say  that  he  has  suffered  hardship  for  lack  of  understanding 
them.     We  thus  hark  back  to  that  essential  matter,  "  The  meet- 
ing  of  the   minds."     (See    §  13   [4].)     The   contractor   admits, 
therefore,  that]  he  understands  the  plans,  specifications,  nature 
and  location  of  the  work,  that  he  has  in  mind  any  and  all  matters 
which  are  likely  to  influence  the  work,  understands  the  quality 
and  quantity  of  material  required,  is  aware  that  he  is  taking  the 
work  upon  his  own  responsibility,  on  the  strength  of  his  own 
judgment  and  personal  information,  and  that  it  is  his  duty  to 
verify  estimates. 

415.  [According  to  the  views  of  Mr.  Wait  (Engineering  News,  June  8, 
1905),  in  which  doubtless  most  fair-minded  persons  will  concur,  it  is  unfair 
to  the  bidder  to  require  him  to  assume  responsibility  for  the  estimate  of 
quantities,  since  the  engineer  usually  has  weeks  or  months  to  verify  and  check 
them  and  should  be  able  to  command  all  necessary  data,  while  the  bidder 
must  either  spend  a  lot  of  time  and  money  to  make  an  estimate  for  himself 
(with  small  chance  that  he  will  ever  be  paid  for  his  trouble),  or,  if  he  is  unable 
or  unwilling  to  do  this,  he  goes  in  blindly  or  bases  his  estimate  upon  figures 
which  the  engineer  expressly  disclaims  responsibility  for.     Mr.  Wait  argues 
with  force  and  warmth,  that  this  procedure  is  a  shirking  of  responsibility  by 
the  engineer,  is  unprofessional,  unjust,  and  provocative  of  lawsuits.] 

416.  [The  provision  that  the  contractor  "understands"  all 
matters  likely  in  any  way  to  influence  the  contract,  seems  super- 
fluous.    For  if  the  matters  which  are  seriously  to  influence  it  are 
within  the  control  of  either  party,  and  they  allow  them  to  get 
beyond  their  control  to  affect  the  contract,  they  may  be  liable 
as  on  a  breach.     If  the  matters  are  not  within  the  control  of  either 
party,  it  does  not  seem  to  advance  the  argument  any  nor  add 
anything  to  the  contract  for  the  contractor  to  say  that  he  under- 
stands that  his  work  may  be  swept  away  by  a  phenomenal  freshet, 
for  instance.     If  the  parties  contemplate  this  contingency,  they 
should  say  so  in  no  vague  terms,  and  proceed  to  describe  the  rights 
of  the  parties  in  such  an  event.] 

417.  (2)  Scope  of  Contract.  —  The  extent  of  the  work    of 
undertaking  should  be  explicitly  stated.     The  contractor  is  to 

262 


ENGINEERING    CONTRACT-WRITING  §  420 

furnish  everything,  to  use  improved  appliances,  and  the  prices 
are  to  include  all  expense  of  whatever  sort.  It  is  mutually  agreed 
that  the  "  intention  "  of  the  contract  is  that  the  work  shall  be 
carried  out  according  to  the  true  spirit,  meaning,  and  intent  of 
the  plans  and  specifications. 

418.  (3)  Duration  of  Contract.  —  The  time  of  commencement 
and  of  completion  [if  desired]  must  be  clearly  stated.     The  time 
may  also  be  subdivided,  and  dates  fixed  for  various  stages  of  com- 
pletion, and  directions  given  for  prosecuting  the  work  in  order  to 
complete  on  time.     It  should  be  stated  that  time  is  an  essential 
element  of  the  contract  [if  it  is  so]  and  that  alterations  shall  [or 
shall  not]  extend  the  time.     [See  §  474-(13).]    If  the  time  is  ex- 
tended, this  is  not  to  waive  the  right  to  terminate  the  contract, 
which  right  will  exist  if  there  is  failure  to  complete  on  time  [or  as 
otherwise  provided].     It  should  be  stated  what  is  intended  in 
case  the  contractor  reduces  his  force,  or  suspends  work,  and  it  may 
be  provided  that,  if  this  happens,  it  shall  not  be  necessary  for  the 
Company  to  wait  until  the  time  limit  has  expired  before  under- 
taking to  complete  for  the  contractor. 

419.  (4)  Plans  and  Specifications.  —  The  work  is  to  conform 
to  the  plans  and  specifications  which  are  made  a  part  of  the  con- 
tract (by  reference  [§  405]  or  attachment)   and  are  signed  for 
identification.     (§  406.) 

There  may  be  a  guaranty  of  the  sufficiency  of  the  plans  and 
specifications,  or  it  may  be  agreed  that  the  contractor  is  not  to 
take  advantage  of  errors,  omissions,  and  discrepancies  in  them. 
[It  would  seem  that  these  two  provisions  must  be  used  in  the  alter- 
native, only,  for  how  can  the  engineer  guarantee  the  correctness 
of  his  work  with  one  breath,  and  in  the  next  suggest  to  the  con- 
tractor that  if  there  are  any  blunders  in  his  work,  then  will  the 
contractor  please  be  a  gentleman  and  not  try  to  crowd  the 
engineer!]  (See  also  §  454  on  Bad  Specifications.) 

420.  The  true  spirit,  meaning  and  intent  of  plans  and  speci- 
fications may  be  amplified  by  stating  here  what  the  full  purpose 
of  the  work  is  to  be,  what  conditions  it  must  fulfill,  etc.,  and  this 
will  furnish  a  very  practical  "  rule  of  construction  "  (§  81)  to  assist 
all  who  may  be  called  upon  to  interpret  the  contract. 

There  may  be  conflict  between  the  plans  and  specifications,  or 
between  the  contract  and  specifications,  or  between  either  of  them 
and  the  engineer's  decision.     Rules  as  to  which  shall  have  pre- 
263 


§  421  CONTRACTS 

cedence  may  well  be  provided.  (See  §  83.)  The  power  to  inter- 
pret the  plans  and  specifications  is  usually  reposed  with  the 
engineer.  If  further  plans  are  to  be  prepared,  who  is  to  make 
them,  who  shall  verify  them,  and  who  shall  be  responsible  for 
errors  in  them? 

421.  (5)  Measurement  of  Quantities.  —  It  is  often  provided 
that  the  measurements,  calculations,  and  classifications  made  by 
the  engineer  shall  be  final  and  conclusive.     [But  see  Appendix 
Note    4,    Implied    Condition    of    Fact.]     Preliminary    surveys, 
measurements  and  estimates  are  not  guaranteed  to  be  correct. 
(See  §  415.)     The  specifications  may  provide  a  way  of  measuring 
quantities,  and  the  work  must  be  done  in  accordance  with  it. 
Shall  custom  and  usage   (§§  85-7)   control  in  making  measure- 
ments, or  shall  actual  quantities  be  used? 

422.  (6)  Workmanship  and  Materials.  —  The  workmanship 
and  materials  must  be  first  class,  and  of  the  best  kind  as  specified; 
but  if  first  class  is  not  specified,  then  both  are  to  be  of  the  best 
kind  customarily  used  on  such  work,  and  approval  of  them  is  to 
be  secured  before  using  them  in  the  work.     The  contractor  is  to 
provide   and  protect  materials  and  appliances,  and  to  protect 
work  from  injury;   to  make  good  all  defective  work  (before  final 
acceptance)  [see  §  474-(15)];  to  provide  facilities  for  inspection; 
and  to  remove  condemned  materials  from  the  site.     If  the  con- 
tractor refuses  or  neglects  to  replace  defective  work  or  materials, 
Company  may  do  so  at  his  expense.     The  Company's  right  to 
have  perfect  work  is  not  waived  by  approving  and  accepting 
improper  or  defective  work.     It  is  well  to  provide  that  the  owner- 
ship of  materials  shall  pass  to  the  Company  upon  being  delivered 
upon  the  site  [or  when  attached  to  the  soil  (see  §  181)  or  incor- 
porated into  the  structure]. 

423.  (7)  Conduct  of  Work  or  Undertaking.  —  It  should  be 
stipulated  what  degree  of  control  of  the  work  and  of  the  work- 
men is  intended.     [See  the  whole  topic  of  "  Independent  Con- 
tractor "  (Sees.  172,  et  seq.)  in  this  connection.]     The  order  in 
which  the  work  is  to  be  performed,  and  the  agreement  as  to  the 
rate  of  progress  of  the  work  should  both  be  stated.     Provision  may 
be  made  for  the  Company  to  increase  the  forces  in  case  of  delay. 
The  contractor  agrees  that  his  relation  to  contiguous  work  shall 
be  thus  and  so;  that  he  will  not  interfere  with  other  contractors; 
that  he  will  remove  all  temporary  structures,  and  dispose  of  waste 

264 


ENGINEERING   CONTRACT-WRITING  §  426 

materials;  that  he  will  protect  the  tracks,  and  facilitate  train 
movements  so  far  as  lies  in  his  power;  that  he  will  employ  only  un- 
objectionable employees,  and  will  dismiss  those  who  are  objection- 
able to  the  Company;  and  will  not  tolerate  the  presence  or  use  of 
liquors  on  the  work.  He  agrees  to  have  a  responsible  head-fore- 
man always  in  charge  and  present  upon  the  work  [see  §  474-(7)]; 
that  notices  by  correspondence  suitably  addressed  shall  be  bind- 
ing upon  him;  that  he  will  submit  to  the  Company's  exercising 
certain  powers  of  direction  over  his  forces;  and  that  he  will  pre- 
serve all  reference  marks,  stakes,  grades,  and  level  lines  given  him 
in  laying  out  the  work. 

424.  (8)  Changes  or  Alterations.  —  The  Company  may  reserve 
the  right  to  make  changes,  alterations,  and  additions  in  the  work, 
or  to  make  alterations  in  the  terms  of  the  contract.     These  altera- 
tions may  affect  the  sureties  [App.  Note   15,   §§  31,   109]  and 
may  vary  the  provisions  as  to  liquidated  damages  [see  Appendix 
Note  No.  9].     If  the  alterations  make  the  work  more  difficult,  or 
result  in  extra  work,  it  would  seem  that  the  contractor  should  be 
granted  an  extension  of  time,  or  excused  for  delay  upon  account 
of  them ;  but  it  is  not  unfair  to  say  that  the  Company's  assent  to 
make  alterations  is  no  agreement  to  pay  for  extras.     If  the  changes 
result  in  reducing  the  amount  of  the  work,  the  contractor  is  to 
have  no  claim  for  anticipated  profits,  nor  shall  the  said  changes 
or    alterations    vitiate    the    contract.     [See    §  31.]     The    power 
to  determine  the  value  of  alterations  may  be  vested  in  the  engineer. 

425.  (9)  Extra  Work.  —  The  contractor  should  give  written 
notice  of  claims  for  extra  work  in  case  additions  are  made,  and 
the  value  of  such  additions  and  alterations  shall  be  determined  by 
the  engineer,  who  also  has  power  to  order  such  extras  [see  §§  114- 
16.]     [It  seems  better  if  a  written  order  is  given  authorizing  the 
extra  work.     In  it  the  price  agreed  upon  should  be  specifically 
stated.     If  the  contractor  and  engineer  fail  to  agree  upon  the 
terms,  the  Company  may  contract  with  a  third  party  to  do  the 
extra  work.     The  extra  work  may  also  be  done  by  "  Force  and 
Material  Account,"  which  practically  amounts  to  a  "  cost-plus-a- 
percentage"  plan.] 

426.  (10)  Contractor's  Risks  and  Obligations.  —  It  is  of  the 
essence  of  the  contract  that  the  work  shall  remain  in  charge  of 
the  contractor  until  completed  and  accepted,  and  the  contractor  is 
to  assume  all  risks  and  damages  up  to  such  time  of  completion  and 

265 


§  427  CONTRACTS 

acceptance.  [See  §  172  et  seq.~]  He  shall  be  responsible  for  de- 
lays and  damages  to  trains,  tracks,  structures,  passengers,  and 
employees  of  the  Company,  and  for  damages  to  all  other  persons 
or  property.  He  is  under  obligation  to  serve  all  notices  required 
by  law,  and  to  secure  all  necessary  permits  and  licenses;  to  afford 
protection  at  crossings;  and  to  do  all  that  is  necessary  to  accom- 
plish the  purpose  for  which  the  contract  is  entered  into.  [See 
§§  417  and  420.]  The  contractor  is  not  to  interfere  with  the  Com- 
pany's agents  or  employees,  nor  to  deny  them  entrance  or  access 
to  the  work.  He  is  not  to  allow  ardent  spirits  to  be  sold  nor 
given  away  on  the  work.  If  the  Company  is  to  lay  out  the  work, 
he  is  to  furnish  assistance,  but  if  he  is  to  stake  out  the  work  him- 
self, or  is  to  furnish  the  plans  [or  parts  of  them]  he  is  to  be  liable 
for  his  mistakes  [compare  with  §  165],  and  must  make  good  to 
third  parties  damages  suffered  by  reason  of  defects  in  his  plans. 
[These  latter  provisions  hardly  seem  necessary,  since  it  has 
already  been  shown  (§  159)  that  a  person  is  in  general  liable  for  his 
acts,  as  well  as  for  his  failure  to  act.]  It  may  be  well  to  add  a 
specific  statement  covering  the  contractor's  risks  and  liabilities 
under  "  Force  and  Material  Account.'* 

427.  [As  hinted  in  numerous  places  elsewhere,  it  is  very  easy  to  overdo 
the  clauses  which  load  all  possible  risks  and  obligations  upon  the  contractor. 
If  the  contract-writer  would  candidly  place  himself  in  the  position  of  the  con- 
tractor who  is  bidding  upon  the  terms  he  proposes,  and  only  insert  those  con- 
ditions which  he  himself  would  willingly  undertake,  it  is  safe  to  say  that 
contracting  work  would  be  much  less  a  gamble  than  it  is  to-day.J 

428.  (11)  Assignment  of  Contract.  —  Assignment  of  the  con- 
tract is  usually  prohibited  [for  the  reasons  given  in  §  145],  and  it 
is  commonly  provided  that  sub-contracts  shall  not  be  made  with- 
out the  Company's  consent.     In  such  a  case  it  will  be  well  to 
define  the  sub-contractor's  status  [that  is,  whether  the  Company 
will  recognize  and  deal  directly  with  him  or  whether  it  will  only 
recognize  and  deal  with  the  principal  contractor.     See  §  485,  Sub- 
letting.]    The  contractor  may  still  be  required  to  give  personal 
attention  to  the  work,  and  not  be  relieved  of  the  responsibility  for 
its  quality,  etc.,  even  though  it  is  awarded  to  an  acceptable  sub- 
contractor.    It  is  common  to  provide  that  there  shall  be  no  as- 
signments of  moneys  until  earned  [because  it  tends  to  make  the 
contractor  skimp  and  be  careless  with  the  work  if  the  money  to  be 
received  for  it  is  assigned  away  beforehand]. 

266 


ENGINEERING    CONTRACT-WRITING  §  432 

429.  (12)  Payments.  —  [See    also    §§  119,    121,    494.]     The 
method   of   making   payments   should   be   stated   clearly.     The 
method  of  determining  the  amount  to  be  paid,  whether  approxi- 
mate monthly  estimates  or  progress  payments  [upon  completion 
of  various  stages]  are  desired;  what  percentage  of  payments  due 
are  to  be  retained  (see  §  495)  [and  for  what  period  of  time] ;  how 
and  when  final  estimate  is  to  be  made ;  and  the  place  of  payment 
designated,  all  should  be  clearly  stated. 

430.  The  Company  may  reserve  the  right  to  pay  claims  which 
the  contractor  neglects  to  do,  and  to  deduct  them  from  the  amounts 
due  him  on  the  estimates.     [As  this  provision  implies  a  distrust 
of  the  contractor's  business  capacity,  and  is  open  to  serious  abuse 
unless  handled  with  the  greatest  circumspection,  it  is  doubtful 
whether  it  is  a  wise  one  to  insert]. 

If  the  basis  of  payments  is  a  schedule  of  unit  rates,  this 
schedule  must  appear,  and  so  also  must  a  statement  of  the  bonus, 
if  any  is  contemplated  [together  with  a  careful  statement  of  the 
conditions  under  which  the  bonus  may  be  earned].  It  is  usual  to 
provide  that  the  contractor  shall  be  paid  upon  certificate  from 
the  engineer.  [When  so  stated  it  is  a  condition  precedent,  etc. 
See  §  74.] 

431.  (13)  Failure  to  Comply  with  Terms  of  Contract.  —  The 
conditions  under  which  the  contract  may  be  cancelled  should  be 
explicitly  stated.     The  reference  to  forfeiture  of  contractual  rights 
on  the  part  of  the  contractor,  as  by  the  Company's  completing 
work  for  him;  his  bankruptcy;  his  refusal  or  neglect  to  prosecute 
the  work  with  sufficient  force;  or  his  failure  to  meet  bills  promptly 
—  all  should  be  explicit,  if  such  conditions  are  contemplated. 

If  the  contractor  fails  to  comply  with  the  terms  of  the  con- 
tract, it  may  be  provided  that  his  plant  and  materials  can  be 
used  by  the  Company  when  completing  for  him,  and  that  the 
expense  so  incurred  may  be  charged  to  the  contractor.  [See 
§  493.]  If  the  parties  agree  to  it,  there  may  be  a  provision  for 
liquidated  damages  [see  App.  Note  9],  which  shall  accrue  to  the 
Company  if  the  contractor  fails  to  complete  within  a  specified 
time. 

432.  (14)  Company's    Protection    and    Security.  —  A    bond, 
"  conditioned  "  to  secure  faithful  performance,  is  usually  required 
of  the  contractor,  and  this  bond  must  accompany  the  bid.     It 
may  be  stated  what  type  of  bond  or  security  is  acceptable  [that  is, 

267 


§  433  CONTRACTS 

whether  of  a  Bonding  or  Trust  Co.,  or  of  private  bondsmen].  The 
contractor  is  required  to  agree  that  he  will  indemnify  the  Com- 
pany against  all  damages  and  claims  [arising  through  the  con- 
tractor, or  through  his  work.  See  exceptions  to  Independent  Con- 
tractor Rule,  §  176,  etc.]  He  must  further  agree  to  protect  the 
Company  against  all  liens  for  labor  and  materials  by  [paying 
the  amounts  due,  and  thus  releasing  the  liens],  and  to  protect  them 
in  suits  arising  over  patents  used  by  him  in  the  work.  If  a  certi- 
fied check  or  Government  bond  is  the  desired  security  on  the 
"  bid-bond,"  it  should  be  so  stated.  It  is  common  to  provide 
that  the  contractor  shall  keep  the  property  covered  by  fire  insur- 
ance during  the  course  of  erection,  and  in  case  of  bankruptcy,  that 
title  of  material  shall  pass  to  the  Company.  [Before  inserting 
the  bankruptcy  provisions,  however,  legal  counsel  should  be 
sought,  because  the  National  Bankruptcy  Act  views  assignments 
of  whatever  sort  with  suspicion,  and  this  provision  might  invite 
difficulty,  rather  than  avoid  it.] 

[On  titles  (15),  (16),  (17),  (18),  and  (19),  the  Committee  make 
no  suggestions  for  matter  to  be  inserted,  but  merely  name  the 
groups  of  provisions  which  they  think  should  be  further  expanded. 
They  will  be  named  here,  with  brief  comments  by  the  author.] 

433.  (15)  Disputes  and  Arbitration.  —  [Disputes   will   com- 
monly arise,  if  at  all,  in  determining  the  proper  classification  of 
work,  and  whether  its  quantity,  quality,  character,  skill  used  in 
execution,  and  general  sufficiency  satisfy  the  requirements  and 
whether  or  not  work  ordered  is  an  "extra  "  (§114)  or  amounts 
to  an  "  alteration."     (§  109.)     It  is  common  to  give  extensive 
powers  to  the  engineer  with  reference  to  all  these  points,  as  per 
(20)  below,  and  it  is  undoubtedly  wise  to  provide  a  way  in  which 
arbitration  may  be  had  (see  §  487) .] 

434.  (16)  Litigation.  —  [The  contractor  is  often  made  respon- 
sible (see  No.  10)  and  answerable  for  all  damage  suits  or  other  liti- 
gation incurred  during  the  work,  and  by  the  contract  the  Com- 
pany expressly  avoids  any  responsibility  in  connection  with  them. 
This  will  be  seen  to  be  a  blanket  clause  subject  to  abuses,  and 
§  178  should  be  carefully  read  in  this  connection.] 

435.  (17)  Definition  of  Terms.  —  [This  is  a  highly  important 
matter  since,  by  a  careful  definition  of  the  important  terms  used 
in  the  contract,  the  parties  furnish  a  pre-eminently  practical  mode 
of  construing  its  meaning.     [See  also  §  445-(4).]    Typical  matters 

268 


ENGINEERING   CONTRACT-WRITING  §  440 

to  be  defined  are  illustrated  in  §  474,  (4),  of  the  Charles  River  Dam 
Contract,  given  as  EXAMPLE  II  later  in  this  chapter.] 

436.  (18)     Property  and  Right  of  Entry.  —  [The  ownership  or 
acquisition  of  site  of  the  work;   the  duties  of  each  party  in  this 
respect;  stipulation  that  Company  or  agents  may  at  all  times  enter, 
etc.,  etc.,  —  these  and  allied  matters  come  under  this  title.     See 
§§  426,  126,  etc.] 

437.  (19)  Transportation.  —  [In  this  clause  it  is  common  to 
state  the  terms  agreed  upon  relative  to  the  transportation  of  men 
and  materials  to  or  from  the  work.     It  may  be  provided  that  the 
contractor's  plant  will  be  transported  free  over  the  Company's 
lines,  etc.] 

438.  (20)  Powers  of  the  Engineer.  —  The  engineer  is  usually 
given  power  to  explain  the  plans  and  specifications,  to  have  super- 
vision and  direction  of  the  work,  and  to  determine  the  value  of 
work  and  materials.     [It  is  most  common  to  give  him  rather 
extensive  powers  of  a  discretionary  sort,  since  the  aim  is  to  facili- 
tate and  expedite  the  work.     See  §§  487,  420,  421,  433,  490.] 

439.  Sometimes  it  is  provided  that  the  engineer  shall  be  sole 
judge  to  determine  and  decide  all  matters  arising  out  of  the  con- 
tract, and  that  his  decision  shall  be  final  and  subject  to  no  appeal, 
or  that  he  may  be  an  arbitrator.     (See  §  487.)     [As  shown  under 
Public  Policy,  §§  33-4,  agreements  whereby  one  forfeits  his  right 
to  be  heard  in  Court  are  void.     It  is  not  easy  to  see,  either,  how 
the  engineer  can  be  a  genuine  arbitrator,  since  the  term  implies 
that  disputants  lay  their  difficulties  before  the  arbitrator  who, 
being  a  disinterested  party,  dispenses  justice  between  them.     On 
engineering  work,  the  engineer  represents  and  is  the  agent  of  the 
Company,  and  is  personally  a  party  to  the  dispute.     Therefore 
since  no  one  but  himself  states  the  Company's  case,  he  should  not 
be  expected  to  invariably  assume  an  impersonal  and  unbiased 
standpoint.     Generally  he  has  already  declared  himself  as  very 
much  interested  and  biased,  so  much  so,  that  the  contractor  is 
quarrelling  with  him  over  that  very  point.     See  also  §  490.] 

440.  The  engineer  may  be  given  authority  to  order  extras, 
and  make  alterations  and  omissions.     [Such  a  clause  as  this  prob- 
ably means  that  such  orders  given  by  the  engineer  will  bind  the 
Company,  but  does  not  of  course  mean  that  the  engineer  can 
modify,  alter,  and  order  extras  at  his  own  pleasure,  or  in  fact 
practically  set  aside  the  contract.     There  is  an  implied  condition 

269 


§  441  CONTRACTS 

in  the  agreement  which  the  contractor  makes  giving  the  engineer 
this  power.  See  Appendix  Note  4A.]  It  will  be  well  to  specify 
the  duties  of  the  engineer's  assistants,  his  duty  with  reference  to 
lines  and  levels,  and  that  he  may  secure  the  dismissal  of  objec- 
tionable employees  of  the  contractor. 

441.  In  submitting  the  report  on  which  the  above  discussion 
is  based,  the  Committee  states  that  the  above  and  similar  subject 
matter  has  been  before  different  Committees  of  their  Association 
for  about  seven  years,  but  without  satisfactory  progress,  and  that 
the  present  Committee  was  engaged  upon  it  for  a  year.    During 
this  year,  they  claim  to  have  only  outlined  their  subject,  and  doubt 
whether  they  have  even  succeeded  in  classifying  the  various 
matters  under  their  proper  headings.     In  fact  they  submitted  the 
report  without  recommendations,  and  asked  for  discussion  by  the 
Association's  membership  in  order  that  they  might  make  further 
progress  toward  a  Uniform  General  Contract  Form.     (See  §  461.) 
They  reported  having  collected,  studied,  and  analyzed  a  large 
number  of  contracts  used  by  various  railroads,  and  to  have  con- 
sulted many  authorities.     If,  therefore,  no  greater  progress  was 
made  by  this  capable  body  of  men  actuated  by  a  serious  purpose, 
is  stronger  evidence  needed  to  prove  that  the  only  way  such  a  task 
can  be  satisfactorily  ended  is  through  a  study  and  mastery  of  the 
principles,  not  merely  by  collecting  examples?    One  who  tries  to 
learn  by  examples  only,  which,  though  numerous  and  carefully 
stated,  yet  are  wholly  unconnected  by  a  statement  of  the  under- 
lying principles,  is  committed  to  a  task  well-nigh  hopeless. 

442.  The  above  Committee  also  pointed  out  that  even  if  they 
should  succeed  in  producing  a  uniform  contract  form,  it  could  only 
embrace  the  most  general  matters  or  requirements,  for  all  stipu- 
lations peculiar  to  specific  types  of  construction  would  be  ex- 
cluded, because  these  are  a  part  of  the  specifications  for  that 
particular  class  of  work.     (See  §  461.) 

443.  GENERAL    CONDITIONS;     BUILDING    AGREE- 
MENT. —  Mr.  Bamford  *  suggests  the  following  practical  points 
for  insertion  in  the  General  Conditions  of  a  building  agreement. 
They  are  inserted  here  because  they  may  prove  helpful  and  sug- 
gestive to  engineers  writing  contracts  for  other  classes  of  work. 

444.  (1)  Checking  Documents.  —  The  contractor  shall  study 
and  compare  the  drawings,  specifications,  and  other  information 

*  Proc.  Am.  Soc.  C.  E.  XXXV,  1348. 

270 


ENGINEEKING   CONTRACT-WRITING  §  447 

given  to  him  by  the  engineer.  He  shall  scan  the  figures,  and  any 
discrepancy,  inconsistencies,  or  omissions  of  statement  regarding 
materials  and  modes  of  construction,  which  he  notes,  shall  be 
reported  in  writing  to  the  engineer. 

[There  is  a  lack  of  warranty  of  results  on  the  contractor's  part  when  he 
undertakes  to  build  according  to  "  plans  and  specifications  "  furnished  him  by 
the  owner.  (See  §  456.)  It  appears,  therefore,  that  the  above  provision  does 
not  ask  the  contractor  to  warrant  anything  —  but  merely  makes  it  his  duty 
to  check  over  and  verify  the  data  given,  in  order  that  he  may  detect  any 
patent  discrepancies.  (Compare  §  456.) 

The  practical  advantage  of  such  a  clause  seems  to  be  in  slightly 
relieving  the  engineer's  burden  of  verifying  the  data  and  might 
secure  some  mitigation  of  damages  for  the  owner,  in  case  the  con- 
tractor sued  for  damages  sustained  by  him  through  some  error  in 
the  data  furnished.  That  is  to  say,  the  owner  might  prove  there 
was  a  neglect  of  duty  on  the  contractor's  part.] 

445.  (2)  Materials  and  Workmanship,  —  states  whether  all 
new  materials  are  required,  or  otherwise.     The  clause  defines  in 
detail  what  is  meant  when  something  is  said  to  be  of  an  "ap- 
proved "  style;   when  samples  of  proposed  materials  will  be  re- 
quired for  approval  in  advance;    and  mentions  the  quality  of 
workmanship  which  the  contract  contemplates.     [See  §  422-(6).] 

(3)  Scope  of  the  Contract.  —  The  exact  limits  of  the  contem- 
plated work  are  given,  and  if  there  are  any  exceptions  which  lie 
within  its  limits,  they  should  be  stated. 

(4)  Definitions.  —  Certain  of  the  more  important  technical 
terms  and  phrases  which  occur  in  the  instrument,  the  units  of 
measurement,  what  persons  are  meant  by  certain  titles,  etc.,  etc., 
all  should  be  defined  with  particularity.     [See  §  474  (4) .] 

446.  (5)  Drawings.  —  It  is  stated  what  existent  drawings  are 
incorporated  into  the  contract  at  the  time  of  its  execution,  and 
who  is  to  furnish  any  additional  drawings  (if  such  are  required), 
such  as  detail,  or  erection  plans.    Mention  is  made  of  the  degree 
of  completeness  in  detail  required  on  such  supplementary  draw- 
ings, and  that  if  they  are  to  be  made  by  the  contractor,  they  must 
conform  to  the  engineer's  plans  and  specifications.     [See  §  419  (4).] 

447.  (6)  Lines  and  Levels.  —  This  clause  states  who  is  to 
furnish  the  lines  and  grades,  and  who  shall  be  responsible  for  their 
accuracy.     The  burden  is  usually  put  upon  the  contractor  to 
maintain  them,  once  they  have  been  given  by  the  engineer. 

271 


§  447  A  CONTRACTS 

ADVERTISING  AND  LETTING  CONTRACT 

447  A.  When  the  plans,  surveys,  estimates,  and  contract 
and  specifications  for  work  are  completed,  or  substantially  so, 
and  the  money  provided  Instructions  to  Bidders  and  an  Ad- 
vertisement (if  desired  or  required  by  law)  are  prepared.  These 
aim  to  bring  the  proposed  work  to  the  attention  of  contractors 
or  manufacturers  engaging  in  such  work,  so  that  reasonable  com- 
petition may  be  secured.  The  advertising  medium  should  be 
selected  with  due  reference  to  the  class  sought  to  be  reached.  In 
addition  special  notices  may  be  sent  to  parties  known  to  be  quali- 
fied and  interested,  often  all  that  is  done  in  case  of  private  work. 

The  advertisement  should  state  clearly  and  with  the  greatest 
practicable  detail  what  is  to  be  done,  and  where,  when,  and  by 
whom,  proposals  will  be  received.  This  places  information  in  the 
hands  of  interested  parties  permitting  them  to  determine  whether 
the  circumstances  are  such  as  to  warrant  their  further  inquiry, 
and  incurring  of  some  expense  —  especially  desirable  if  the 
notice  will  come  to  the  eye  of  prospective  bidders  resident  at  a 
considerable  distance  from  the  location  of  the  work. 

Then  the  notice  should  give  the  location  of  the  work,  state 
whether  or  not  any  work  or  materials  will  be  furnished,  time- 
limit  on  the  work,  if  any,  where  plans  and  specifications  can  be 
seen  or  obtained,  general  information  secured,  and  state  security 
required  of  bidders.  It  commonly  reserves  the  right  to  waive 
informalities  and  to  reject  any  or  all  bids  (though  it  may  be 
doubted  whether  this  is  strictly  necessary,  since  it  seems  suf- 
ficiently implied  that  the  public  offer  is  to  receive  proposals, 
and  it  is  not  necessarily  implied  that  any  proposals  made  will  be 
accepted). 

447  B.  Proposal.  —  Where  the  nature  of  the  work  is  simple, 
or  lump-sum  bidding  is  desired,  the  proposal  may  be  simple 
and  informal,  simply  containing  a  definite  and  unconditional  offer 
to  do  a  definite  thing  for  an  equally  definite  sum  of  money. 

But  where  unit-price  bids  are  desired,  and  there  is  a  con- 
siderable number  of  them,  as  will  be  the  case  on  most  important 
work,  a  definite  form  prepared  in  advance  will  be  almost  necessary. 
In  costly  works,  the  advantage  will  well  repay  the  cost  of  having 
it  put  into  type.  It  thus  tends  to  insure  that  all  the  bidders 
cover  all  of  the  items,  permits  ready  comparison  between  bids,  and 

272 


ENGINEERING   CONTRACT-WRITING  §  447  D 

indicates  almost  at  a  glance  whether  or  not  any  changes  or  altera- 
tions have  been  made  by  individual  bidders  —  a  matter  usually 
expressly  warned  against. 

In  the  formal  proposal,  the  advertisement,  plans,  and  speci- 
fications should  be  incorporated  by  reference  (§  405),  the  time 
of  beginning  and  ending  the  work  stated,  should  recite  the  security 
submitted,  and  to  be  later  furnished  in  case  of  receiving  a  contract, 
and  should  contain  the  signatures  of  the  principals,  suitably  wit- 
nessed, their  place  of  business  and  a  legal  description  of  them- 
selves, if  other  than  a  natural  person. 

For  Instructions  to  Bidders,  see  illustrative  example  in  §  473. 
In  addition  to  the  matters  treated  there,  it  is  often  provided  that 
the  qualifications  of  Bidders  will  receive  careful  consideration,  that 
they  must  have  been  regularly  engaged  in  this  sort  of  work,  or 
possess  sufficiently  cognate  experience  or  organization,  or  both, 
must  show  sufficient  financial  standing  to  warrant  an  award  to 
them,  and  that  the  right  is  reserved  to  ignore  irresponsible  bidders, 
known,  or  with  good  reason  believed  to  be  such. 

447  C.  Awarding  Contract;  Selecting  Contractor. — Is  lowest 
"responsible"  bidder  the  best  that  can  be  done?  The  assump- 
tion that  financial  responsibility  implied  is  sufficient  is  not  suf- 
ficient. It  omits  the  fact  that  inexperience  or  inability  to  actually 
administer  work  effectively  may,  especially  in.  difficult  or  elaborate 
work,  positively  preclude  satisfaction.  It  may  also  be  lack  of 
intelligence  and  lack  of  energy  upon  the  part  of  contractor.  No 
pressure  brought  to  bear  upon  him  can  supply  place  of  experience 
and  ability  in  a  contractor.  Result,  inferior  work,  or  vexatious 
law-suits,  cancellation  of  contract,  and  re-award. 

Probably  poor  work  is  more  often  due  to  inability  of  contrac- 
tor instead  of  his  disinclination,  or  too  much  slackness  of  inspector. 

"  Lowest  responsible  bidder  "  phrase  may  be  satisfactorily  handled,  how- 
ever, by  refusal  to  receive  bids  [as  informal  (?)],  if  a  bidder  can  not  supply 
satisfactory  credentials  in  this  respect.  Some  cities  require  that  a  bidder 
shall  have  stated  amount  of  experience  in  the  type  of  work  to  be  let,  and 
other  requirements  may  be  added,  the  satisfying  of  which  is  made  preliminary 
to  acceptance  of  any "  bid  from  him.  This  makes  contractor's  experience, 
ability,  honesty,  and  general  satisfactoriness  of  his  work  over  a  term  of  years 
a  part  of  his  capital. 

447  Do  -Contractor  on  Awarding  Contracts.  —  He  pleads  for 
better  understanding  with  engineer;  less  suspicion,  more  co- 
operation ;  less  adherence  to  letter,  more  to  spirit  of  specifications 

273 


•J  448  CONTRACTS 

(i.e.,  "intention"),  when  in  fact  they  might  be  equally  as  well 
satisfied  by  lenience  on  certain  points,  e.g.,  grading-off  an  inch 
of  hard  macadam  to  make  a  foundation  meet  specified  grade 
exactly.  Better  left  alone,  as  the  inch  was  unimportant. 

He  says  method  is  now  wrong  where  only  lowest  bid  and 
ability  to  furnish  bond  is  all  that  is  required. 

Scheme  makes  no  difference  whether  contractor  has  had 
previous  experience,  how  dilatory  he  has  been  in  past,  or  how 
difficult  it  has  been  to  make  him  live  up  to  terms  in  past.  "Is  he 
low  bidder?"  is  all.  This  is  very  bad.  A  contractor  who  is 
financially  and  morally  strong,  able  to  go  through  satisfactorily 
with  anything  he  undertakes,  is  thus  put  at  a  disadvantage. 

The  low  bidder  may  be  poor  moral  risk,  unable  to  finance  the 
work  properly,  known  to  be  dishonest  and  undesirable  in  every 
way  except  price. 

This  method  puts  premium  on  fraud  and  dishonesty,  requir- 
ing acceptance  of  the  work  upon  such  terms  as  render  legitimate 
profit  impossible  save  by  beating  specifications,  or  if  the  contractor 
fails  to  do  so,  bonding  company  has  to  finish. 

But  the  blacklisting  of  any  contractor  caught  deliberately 
trying  to  beat  the  work,  or  refusing  to  pay  his  bills  with  regard  to 
public,  state,  or  county  work,  would  make  him  anxious  to  do 
right. 

SPECIFICATIONS 

448.  The  specifications  form  an  integral  part  of  the  contract, 
legally  speaking,  though  engineers  habitually  speak  of  the  two 
things  as  quite  distinct.  The  specifications  describe  the  work 
and  materials  in  detail,  and  sometimes  indicate  the  methods  to  be 
followed  in  erection.  The  "  general  conditions  "  or  "  covenants  " 
contain  a  statement  of  the  legal  rights,  and  business  relations  be- 
tween the  contractor  and  his  employer.  (See  §§  401,  409,  etc.) 
They  enumerate  the  attendant  facts  or  circumstance  under  which 
the  contract  is  to  be  performed.  As  the  specifications  indicate 
the  nature,  quality,  character  and  form  of  the  finished  work,  de- 
fining its  characteristics  both  generally  and  specifically,  it  is 
apparent  that  they  are  a  subject  of  paramount  importance  in  the 
engineering  field,  where  work  is  done  so  commonly  by  contract.* 
There  must  be  a  plan  for  even  the  simplest  structure  if  the 
*  See  Appendix  Note  18.  "  True  Economy  in  Good  Specifications." 

274 


ENGINEERING   CONTRACT- WRITING  §  449 

materials  are  to  be  economically  disposed,  and  the  more  complex 
and  extensive  the  structure  the  more  study  must  be  bestowed  upon 
the  plan  and  its  specifications.  (See  §  397.)  The  plan  alone  will 
not  always  show  sufficiently  by  its  lines  and  diagrams  the  forms 
and  purposes  of  its  constituent  parts,  but  it  must  be  supplemented 
by  clear  and  exact  written  language  to  indicate  the  quality  of 
materials  that  are  to  be  employed,  and  the  modes  of  execution  by 
which  the  finished  fabric  is  to  be  wrought.  Thus  the  engineer's 
need  of  a  thorough  mastery  of  the  subject  matter,  the  ability  to 
analyze  the  inter-relations  and  sequence  of  operations  in  con- 
struction, the  necessity  for  patient  and  prudent  forethought,  are 
all  self-evident.  (See  §  398.) 

449.  Preparation  of  Specifications.  —  Important  carefully 
prepared  specifications  necessarily  incorporate  the  ideas  of  many 
earlier  specifications,  of  the  same  or  other  authorships,  and  ex- 
emplify the  experience  of  the  writer.  They  should  attempt  to 
retain  the  desirable  and  satisfactory  features,  eliminate  unfair 
and  useless  provisions,  clarify  ideas  possibly  obscure,  and  crys- 
tallize the  judgments  and  conclusions  of  former  experiences. 
They  should  aim  to  be  definite  and  specific  without  being  narrow; 
to  require  work  of  the  highest  character,  but  without  arbitrary 
or  questionable  details,  expensive  to  the  owner,  and  irritating  to 
the  contractor,  and  to  provide  that  the  owner  gets  what  he  pays 
for,  and  pays  for  what  he  gets,  but  should  accept  neither  indifferent 
commercial  articles  or  workmanship. 

The  method  of  accomplishing  this  serious  and  important  task 
will  generally  be  somewhat  as  follows:  The  underlying  idea  of 
each  clause  is  outlined,  and  then  written  in  tentative  form.  It  is 
then  discussed  and  debated  by  as  many  competent  parties  as 
possible  concerned  with  it,  then  altered  and  rewritten  with  suf- 
ficient deliberation  to  meet  all  the  contingencies  that  such  dis- 
cussion suggests. 

All  this  will  be  necessary  because  even  very  simple  sentences 
can,  with  all  honesty,  be  taken  to  mean  differently  than  intended 
by  the  alteration  or  perhaps  transposition  of  one  word,  even  if 
used  correctly,  by  improper  punctuation,  or  even  by  change  of 
emphasis  in  the  reading.  Since  the  most  exact  language  is  thus 
capable  of  various  interpretations,  and  loose  language  is  the  cause 
of  most  contentions  over  construction  matters,  it  is  clear  that 
specifications  and  contracts  can  not  be  too  carefully  prepared, 

275 


§  450  CONTRACTS 

even  from  a  grammatical  and  literary  standpoint.  Thus,  mis- 
takes of  carelessness  and  ignorance  may  cause  apprehension  as 
to  the  general  intelligence  of  the  writer,  if  not  of  his  technical 
ability. 

460.  Results  from  Imperfect  Specifications.  —  In  Engineering  News, 
April  14,  1904,  there  are  pointed  out  certain  very  cogent  reasons  for  imper- 
fections in  specifications  which  may  well  be  quoted  here.  "  A  company  or 
corporation  wants  something  done.  It  employs  an  engineer  whose  special 
knowledge  and  training  seem  to  fit  him  for  the  task  of  working  up  the  details 
of  the  scheme.  His  ideas  of  what  he  wants  done  are  embodied  in  the  drawings 
and  specifications.  As  the  engineer  is  not  infallible,  his  drawings  and  speci- 
fications will  not  be  an  absolutely  perfect  embodiment  of  his  ideas.  This  is 
one  source  of  difficulty.  Also,  the  ideas  may  be  originally  defective.  This 
is  a  second  source  of  difficulty.  Again  the  contractor,  who  is  also  human, 
may  with  honest  intentions  construe  the  English  language  differently  from 
the  author  of  the  specifications.  This  is  a  third  source  of  difficulty.  Or  the 
contractor  may  pervert  the  meaning  of  the  language.  This  is  a  fourth  source 
of  difficulty." " 

451.  CONTENTS    OF     SPECIFICATIONS.  —  Mr.    Wait 
makes  the  following  valuable  suggestions  :* 

"The  specifications  and  plans  should  definitely  describe  the  site  of  the 
structure,  and  should  carefully  define  the  limits  and  boundaries  of  the  work, 
and  this  should  apply  to  depth  of  foundations  as  well  as  to  their  areas.  Much 
litigation  would  be  avoided  if  provision  was  made,  either  by  unit  measure,  or 
otherwise,  to  compensate  a  contractor  for  the  additional  and  increased  depth 
which  foundations  may  require  to  be  carried  to  secure  stability.  Plans  not 
infrequently  show  the  vertical  depths  required,  while  the  specifications  pro- 
vide that  foundations  shall  be  sunk  to  such  depths  as  shall  be  satisfactory  to 
the  engineer.  It  is  easy  to  see  that  great  losses  and  hardship  may  thus  ensue 
to  the  contractor,  and  that  the  only  logical  way  is  to  consider  what  is  shown  on 
the  plan  as  included  in  the  contract;  whatever  is  required  outside,  or  beyond 
such  limits  (is  "  extra  "  work  for  which  additional  compensation  may  be 
claimed."  (See  §§  425,  and  114-16.) 

452.  "  The  specifications  should  definitely  define  the  crude 
stock,  the  process  of  manufacture,  and  the  finished  materials  of 
construction,  not  only  positively  as  to  the  good  properties  they 
shall  possess,  but  also  negatively,  naming  defects  that  they  shall 
not  contain.     They  should  provide  for  shop  and  field  inspection  of 
materials,  and  every  class  of  work  should  be  described  in  sufficient 
detail  to  enable  the  builder  to  erect  and  complete  the  structure 
without  further  direction  or  explanation  from  the  engineer  or 
superintendent."     (See  also  §  397.) 

It  has  been  said  that  the  contract,  plans,  and  specifications 
should  together  form  a  complete  guide-book  for  the  contractor, 
and  for  the  owner's  inspectors,  by  which  the  work  is  to.be  executed. 

*  Waddell  &  Wait,  Specs.  &  Contracts,  p.  132-3. 

276 


ENGINEERING    CONTRACT-WRIITNG  §  454 

Obviously,  if  this  guide-book  is  the  production  of  a  skilled  traveller 
over  the  intricate  paths  of  the  subject  matter,  but  little  additional 
oral  interpretation  will  be  required. 

453.  Impracticable  Requirements.  —  It  is  easy  to  fall  into 
such  errors  as  that  of  specifying  impracticable  sizes  of  materials, 
or  non-commercial  types  of  construction,  uncommon  designs,  etc. 
This  is  particularly  likely  to  happen  when  clauses  are  copied  from 
obsolete   or  badly  written   specifications.     It  is   said  that  the 
practice  of  "  compiling  "  specification  on  the  "  scissors  and  paste 
principle,"  by  taking  clauses  from  old  or  inapplicable  specifications, 
is  one  that  leads  an  inexperienced  writer  into  error  more  quickly 
than  any  other.     For  if  he  has  any  doubts  as  to  the  reliability  of 
the  description,  they  will  be  more  or  less  discounted  in  his  mind 
by  the  fact  that  that  particular  clause  has  been  used  before,  — 
but  he  will  be  likely  to  disregard  the  circumstances  attending  the 
former  use. 

454.  BAD   SPECIFICATIONS.     "  Omissions."  —  In  Engi- 
neering-Contracting,   November   3,    1909,    certain    specifications 
from  an  un-named  source  are  discussed,  from  which  the  follow- 
ing is  extracted: 

The  subject  is  Sewers.  First  there  is  a  section  which  contains  a  clause, 
"  And  anything  omitted  which  is  necessary  to  complete  said  sewer  and  sewer 
inlets,  the  same  shall  be  considered  as  appearing  in  both  the  plans  and  speci- 
fications." 

This  is  a  clause  often  appearing  in  specifications,  but  the  word- 
ing as  given  here  is  one  that  requires  interpretation  by  the  Court, 
in  spite  of  the  fact  that  another  section  declares  the  decision  of  the 
engineer  on  the  true  intent  and  meaning  of  the  said  specifications 
shall  be  final.  The  two  clauses  read  together  mean  that  if  the 
engineer  by  reason  of  incompetency  or  neglect,  or  perhaps  sheer 
laziness,  omits  to  put  in  something  that  may  be  required  to  make 
a  complete  job,  he  can  make  the  contractor  do  the  work  and  his 
decision  in  regard  to  anything  connected  with  it  shall  be  final. 

A  third  section  further  declares:  "In  case  of  additions,  alterations,  or 
omissions,  the  engineer  shall  have  the  power  to  stipulate  the  cost  or  reduction 
to  be  charged  or  allowed  for  such  changes,  and  the  contractor  must  have  the 
engineer's  written  orders  covering  the  above,  before  such  changes,  additions 
or  deductions  can  be  made  or  allowed." 

No  Court  would  hold  such  a  clause  valid.  Perhaps  it  is  meant 
that  the  engineer  should  decide  as  to  whether  any  cost  would  be 

277 


§  455  CONTRACTS 

reasonable,  but  if  he  goes  so  far  as  ordering  a  man  to  do  some- 
thing, and  also  fixes  the  amount  which  is  to  be  paid  for  it,  he  is 
likely  to  find  himself  in  difficulty. 

455.  Inconsistency  and  Ambiguity.  —  As  an  illustration  of  in- 
consistency and  ambiguity  in  a  contract,  the  following  is  taken 
from  an  actual  case : 

One  clause  stipulates  the  amount  of  liquidated  damages  to  be  $10  for 
each  day's  delay  in  completion  after  a  certain  time,  but  in  the  preceding 
clause  the  time  for  completing  the  work  is  fixed  absolutely  at  50  days,  and  no- 
where is  there  a  clause  relating  to  extension  of  time  for  bad  weather  or  other 
reasons  generally  to  be  considered  in  construction  work.  It  is  obvious  that 
no  amount  of  argument  can  make  these  clauses  aught  -but  incompatible. 

456.  WARRANTIES;   an  Example  of  Inconsistency.  —  The 

attitude  of  the  courts  is  that  even  if  the  specifications 
require  the  contractor  to  warrant  certain  qualifications  of  the 
work,  as,  for  example,  its  water-tightness,  resistance  to  winds, 
waves,  floods,  etc.,  still  the  contractor's  undertaking  so  to  build 
will  not  be  considered  as  a  warranty  that  the  work  will  fulfill  the 
conditions,  where  the  sizes  of  parts,  materials,  or  modes  of  con- 
struction, etc.,  are  specified.  That  is  to  say,  a  warranty  by  a 
builder  as  to  results  implies  that  he  shall  have  something  to  say 
about  the  design.  (J.  C.  Wait,  Eng.  News,  June  8,  '05.) 

457.  If  it  is  sought  to  connect  the  foregoing  with  some  elementary  prin- 
ciple of  contract  law,  it  will  be  probably  true  to  say  that  in  the  case  just  sup- 
posed, there  was  no  genuine  "  meeting  of  the  minds,"  i.e.,  no  meaning  of  the 
same  thing  in  the  same  sense.     (See  §  18-[4].)     The  owner  is  proposing  that 
the  contractor  shall  build  and  also  warrant  the  fitness  of  the  owner's  plans. 
The  contractor  assents,  in  so  far  as  the  building  is  concerned,  but  the  law 
implies  for  him  the  reservation  that  since  he  did  not  make  the  design,  he  shall 
not  be  responsible  for  its  success. 

458.  Why  Poor  Specifications  Need  Interpretation.  —  Specifi- 
cations are  frequently  written  by  some  one  more  or  less  unfamiliar 
with  the  practical  methods  of  doing  the  work,  or  worse  than  that, 
they  are  inherited,  and  out  of  date.     In  such  cases  interpretation 
is  necessary,  and  permission  should  be  given  in  the  contract  to 
make  a  reasonable  interpretation.     But  engineering  knowledge 
alone  will  not  always  lead  to  the  proper  result,  since  it  has  been 
well  stated  that  a  wide  experience  and  knowledge  of  general 
business  as  well  as  of  construction  work,  coupled  with  a  full 
knowledge   of  existing   conditions,   are   necessary  for   complete 
success.     Fair-mindedness  is  also  essential.     (See  also  §  398.) 

459.  PRACTICAL    HINTS    ON   SPECIFICATIONS.  —  In 

278 


ENGINEERING   CONTRACT-WRITING  §  460 

Eng'g-Contr acting,  of  February  3,  1909,  there  is  an  article,  com- 
mended editorially,  which  gives  numerous  practical  suggestions  for 
Specifications.  Though  quoted  from  an  English  writer,  there  is 
nothing  in  it  which  could  not  be  applied  equally  well  in  American 
practice.  Some  of  its  most  important  points  follow : 

(1)  Language  Used.  —  It  is  of  the  utmost  importance  that  the 
specification  should  be  lucidly  written  in  simple  language,  the 
clauses  arranged  in  logical  sequence,  and  the  description  exact 
and  complete  without  being  verbose.     Every  item  of  the  work 
should  be  allotted  a  separate  clause,  for  otherwise  confusion  must 
ensue.     [See  §§  392-5.] 

(2)  Brevity.  —  As   brevity,   when   consistent  with   complete- 
ness, is  the  hall-mark  of  a  good  specification,  it  should  contain  no 
information  which  may  be  clearly  shown  on  the  drawings,  as  this 
would  be  a  waste  of  labor  besides  being  confusing,  since  it  obscures 
the  drawing  with  unnecessary  writing,  and  overloads  the  speci- 
fication with  identical  information. 

The  degree  of  detail  entered  into  should  be  governed  very 
largely  by  the  magnitude  and  importance  of  the  work,  as  it  is 
obvious  that  the  detail  in  the  specification  for  a  $250,000  job 
would  be  merely  a  display  of  misdirected  energy  if  applied  to  the 
specification  of  works  costing  only  one-tenth  as  much.  [See 
§  395.] 

460.  (3)  Definiteness.  —  A  common  fault  is  indefiniteness  of 
description,  generally  arising  because  the  writer  does  not  have  a 
clear  notion  of  the  work  or  materials  which  he  attempts  to  de- 
scribe, or  it  may  be  due  to  obscurity  in  the  language  used,  or  to 
the  misuse  of  certain  words.  (See  §  398.) 

For  example,  "  proper  "  and  "  sufficient,"  though  widely  used,  are  here 
condemned,  since  it  is  well  argued  that  the  engineer  should  know  what  is 
proper  and  sufficient,  and  describe  it  in  precise  terms.  Failing  this,  he  is 
only  opening  the  way  for  trouble  when  it  becomes  necessary  to  interpret  these 
words  in  terms  of  actual  materials  and  workmanship. 

(4)  Uniformity  of  Treatment.  —  It  has  been  observed  that  in- 
experienced writers  expand  into  unnecessary  verbiage  when  deal- 
ing with  matters  most  familiar  to  them,  but  dismiss  some  equally 
important  point  with  a  brief  direction  that  "  the  work  shall  be 
done  to  the  satisfaction  of  the  engineer."  In  the  latter  case  it  is 
suggested  that  a  fair  implication  from  the  language  is  that  the 
writer  did  not  himself  know  just  what  was  wanted.  A  legitimate 

279 


§  461  CONTRACTS 

use  of  the  phrase  is  in  a  general  clause  referring  to  the  whole 
work. 

A  case  of  this  uneven  description  cited  was  in  a  sewerage  job  evidently 
requiring  but  a  moderate  amount  of  cement,  yet  the  detailed  tests  for  Fort- 
land  cement  were  set  out  at  great  length.  None  of  the  tests  were  in  fact 
applied,  and  apparently  were  not  intended  to  be,  but  the  whole  description 
was  taken  en  bloc  from  another  specification,  presumably  with  a  view  to  over- 
awing the  contractor.  [See  §  453.] 

461.  DEVELOPING   STANDARD  CLAUSES.  — Mr.  Wil- 
liam Bamford,  in  Proc.  Am.  Soc.  C.  E.,  December,  1909,  gives  the 
results  of  considerable  study  of  Building  Specifications  and  Con- 
tracts.    His  effort  was  to  formulate  suitable  expressions  for  the 
relationships  which  ought  to  exist  between  the  parties  to  con- 
struction   contracts  —  building    agreements    in    particular.      He 
acknowledges  the  labors  of  various  committees  of  architectural 
societies  whose  efforts  for  a  number  of  years  past  have  been  toward 
uniformity  or  standardization  of  contract  forms,  but  devotes  the 
bulk  of  the  paper  to  a  form  of  agreement  which  has  been  developed 
during  thirty  years  of  experience  and  of  effort  by  the  Royal  In- 
stitute of  British  Architects,  during  which  time  many  eminent  and 
experienced  men  have  contributed  their  labors  to  it.     Mr.  Bam- 
ford has  frankly  attempted  to  revise  and  adapt  this  English  docu- 
ment (last  officially  approved  in  1903),  to  American  conditions 
and  practice,  though  adhering  as  closely  as  possible  to  the  original. 

462.  He  argues,  moreover,  that  while  many  of  its  provisions 
are  untried  and  new  in  American  practice,  they  have  in  fact  stood 
the  test  of  time  and  litigation  for  over  thirty  years  in  Great 
Britain.     Since  the  systems  of  jurisprudence  of  England  and  of 
the  United  States  are  fundamentally  the  same,  there  is  much  more 
warrant  for  the  effort  to  introduce  these  provisions  into  American 
practice  than  to  start  independently  and  attempt  to  develope  en- 
tirely new  ones. 

As  the  purpose  above  stated  makes  the  treatment  of  the  prob- 
lem particularly  valuable  for  study  by  young  engineers  during  the 
period  of  their  professional  education,  and  as  the  engineers  of  the 
future  must  be  reached  through  the  students  of  to-day,  some  of 
the  more  prominent  features  of  Mr.  Bamford's  paper  have  been 
summarized  herein.  The  reference  to  the  full  text  has  been  al- 
ready given.  There  is  an  abstract  of  the  paper  in  Engineering-Con- 
tracting, January  12,  1910. 

280 


ENGINEERING    CONTRACT-WRITING  §  466 

463.  The  labors  of  the  Committees  from  the  American  Rail- 
way Engineering  and  M.  W.  Association  have  already  been  dis- 
cussed at  length.     (See  §§409  to  442.)     It  is  perhaps  probable 
that  the  movement  for  standardization  is  a  laudable  one.     But  the 
student  and  engineer  should  recognize  that  from  the  very  nature 
of  things  such  a  movement  can  never  be  wholly  successful,  since 
the  wide  variety  of  situations  to  be  met  necessarily  limits  the  field 
of  usefulness  for  any  given  type  of  uniform  contract.     It  should 
also  be  recognized  that  no  amount  of  standardization  of  forms  can 
supply  a  lack  in  knowledge  of  common  contract  principles  on  the 
part  of  those  who  are  to  use  the  standard  contracts.     (See  §  441.) 

464.  SUBDIVIDING  SPECIFICATION.  —  All  the  foregoing 
matter  will  serve  to  show  that  specification-writing  is  a  subject  of 
some  complexity,  or  that,  at  least,  it  involves  a  great  number  of  de- 
tails.  (See  §  396.)  This  means  that  the  writing  of  a  given  specifica- 
tion must  be  approached  in  an  orderly  fashion,  and  it  is  most 
convenient  to  treat  each  independent  matter  by  means  of  a  separate 
clause,  of  which  there  are   naturally  two  classes:    (a)  General, 
referring  to  the  business  relations  which  exist  between  the  parties 
for  this  particular  piece  of  work,   and   (6)   Specific,  pertaining 
directly  and  solely  to  the   construction   and  materials  for  the 
particular  piece  of  work  in  hand.     (See  §  448.) 

465.  The  general  clauses  will  contain  a  description  of  the  work 
as  a  whole,  touching  concisely  upon  its  broader  aspects  but  ignor- 
ing the  details,  and  it  will  be  common  to  find  in  them  the  agree- 
ment as  to  times  and  methods  of  payment,  alterations,  liability 
for  accidents,  abandonment,  time  limits,  arbitration,  subletting 
the  work,  etc.     (See  §§  401-2-3  on  the  point  that  there  is  no 
fixed  line  between  general  clauses  in  the  "  contract  "  and  in  the 
specifications.)     The  guiding  rule  seems  to  be  to  group  under  the 
general  clauses  all  those  matters  which  do  not  pertain  to  any 
single  part,  but  rather  to  the  whole  as  one  unit.     (See  §  471.) 

466.  How  to  Study  Specifications.  —  In  studying  specifica- 
tions as  such,  the  tendency  will  be  to  accumulate  a  mass  of 
details,  perhaps  important  in  themselves,  but  lacking  the  correla- 
tion which  would  arise  by  being  referred,  each  in  turn,  to  the  broad 
guiding  rules  or  principles  upon  which  successful  or  adequate 
specifications  depend.     It  may  also  be  said  that  a  scrutiny  of 
even  the  longest  clauses  in  existing  contracts  will  generally  show  a 
meaning  which  can  for  purposes  of  study  be  adequately  stated  in  a 

281 


§  467  CONTRACTS 

tenth  of  the  words  employed  in  the  formal  instrument.  It  is  sub- 
mitted that  until  this  analysis  and  condensation  is  made  by  the 
student  or  engineer,  he  cannot  judge  intelligently  whether  his  con- 
tract should  contain  that  clause  or  not. 

467.  The  tendency  to  accumulate  a  mass  of  details  may  be 
overcome  in  great  measure  by  grouping  around  a  simple  analytical 
statement  of  a  central  purpose  the  essence  of  all  clauses  studied 
looking  toward  the  same  end.    A  pursuit  of  this  plan  will  afford 
material  assistance  to  the  student  or  engineer  when  he  actually 
faces  the  problem  of  writing  a  contract  and  its  specifications.     In 
this  method  of  study,  it  is  obvious  that  nothing  can  take  the  place 
of  a  free  use  of  note-book  and  pencil,  a  careful  fixing  of  the  atten- 
tion on  the  root-thought  which  every  clause,  section,  or  sentence 
is  to  express,  and  long-continued  and  laborious  practice  in  making 
certain  and  unambiguous  expression  of  that  thought. 

Here  the  assistance  of  an  untechnical  friend  will  be  of  great  assistance 
for  if  he,  unfamiliar  with  the  subject  matter,  can  understand  what  you  mean 
by  what  you  say,  it  is  fairly  safe  to  assume  that  a  person  who  is  familiar  with 
the  subject  will  be  able  to  get  your  true  intent. 

The  contracts  and  specifications  which  follow  are  left  in  skele- 
ton form,  and  merely  the  headings  to  which  the  engineer  may 
wish  to  allude  are  given.  They  are  not  supposed  to  be  anything 
like  a  complete  guide,  nor  even  when  set  out  somewhat  fully  are 
the  clauses  intended  to  be  copied.  But  they  are  intended  to  repre- 
sent a  mode  of  study  and  analysis  which,  if  diligently  applied  by 
any  engineer  or  student  to  the  contracts  and  specifications  he 
meets  in  practice,  must  assist  him  to  acquire  marked  facility  in 
preparing  such  documents. 

468.  Reasons  for  Present  Method.  —  Two  principal  reasons 
may  be  cited  why  it  is  hoped  this  skeleton  form  of  treatment  will 
be  found  useful.     They  are : 

(a)  The  belief  that  the  engineer  who  is  entrusted  with  the 
writing  of  a  certain  specification  will  be  more  familiar  with  the 
details  of  that  particular  work  than  any  other  person  whatsoever. 
Hence,  it  is  probable  that  he  can  never  find  just  what  he  wants  to 
say  in  any  book,  since  no  two  engineering  problems  are  just  alike, 
or  call  for  precisely.the  same  specifications. 

(6)  No  form  of  expressing  the  thought  or  purpose  to  be  treated 
under  each  heading  is,  in  general,  attempted  here.  This  is  be- 
cause of  the  futility  of  attempting  to  cover  all  possible  variants 

282 


ENGINEERING   CONTRACT-WRITING  §  470 

in  cases  that  may  arise,  and  because  the  engineer  may  justly  have 
very  different  views  upon  a  specific  point  than  did  the  engineer 
whose  specification  is  before  him.  (See  §  453.)  Also,  the  works 
on  Contracts  and  Specifications  by  Messrs.  J.  B.  Johnson  and  J. 
C.  Wait  show  just  what  language  was  used  in  a  great  number  of 
past  instances.  This  book  is  an  attempt  to  analyze  principles 
rather  than  to  gather  together  all  possible  illustrations  of  those 
principles.  (See  §  441.) 

469.  Conclusions.  —  Hence  the  lists  of  headings  given  here 
are  not  supposed  to  be  at  all  complete  or  exhaustive  even  within 
the  limits  they  cover.     Instead,  the  purpose  is  that  they  may 
serve  as  suggestions  or  memoranda  of  what  frequently  is  covered, 
and  which  will,  if  checked  off,  assist  the  engineer  to  assure  himself 
that  he  has  not  overlooked  something  of  importance.     Indeed, 
this  list  will  have  entirely  served  its  purpose  if  in  a  given  case  but 
few  of  its  headings  are  used,  but  it  does  in  fact  suggest  to  the 
engineer  the  things  he  wants  to  put  into  his  contract. 

While  it  would  be  possible  to  extend  almost  indefinitely  a  list 
of  topics  which  specifications  might  cover,  and  about  which  ex- 
tended remarks  and  observations  might  properly  be  made,  many 
of  the  points  which  follow  have  been  previously  alluded  to  in 
various  parts  of  this  book.  Further  comments  will  be  reserved 
for  statement  in  connection  with  the  skeleton  contracts  and 
specifications  which  are  to  follow.  These  will  be  found  to  be  but 
little  more  than  a  tabulation  of  headings  taken  from  what  are 
regarded  as  high-class  specifications.  The  reasons  for  this  style 
of  treatment  have  already  been  given.  (See  §  468  and  Appendix 
Note  20,) 

470.  Situation  Summarized.  —  If  the  engineer  is  uncertain 
upon  a  question  of  contract  law  involved  in  carrying  out  his  inten- 
tions, this  book  purposes  to  assist  him  to  answer  it  correctly,  or 
at  least  to  give  him  an  intelligent  conception  of  the  precise  legal 
point  involved,  so  that  he  may  successfully  co-operate  with  a 
lawyer  in  its  solution.     If  it  is  a  question  of  standard  modes  of 
engineering  procedure,  obviously  this  book  can  be  of  little  assist- 
ance,  but  the   engineer  must  seek  information   in  engineering 
treatises,  or  in  the  publications  of  experts  in  that  specialty.     And 
finally,  if  the  problem  is  one  of  a  clear  expression,  his  necessity 
is   to  sit  at  the  feet  of   masters  of   rhetoric   and  teachers  of 
English. 

283 


§  471  CONTRACTS 


EXAMPLE  I 

471.  As  an  example  of  compact  analysis  of  the  General  Con- 
ditions in  a  very  important  specification,  the  following  is  selected 
from  Engineering  News,  February  13,  1902,  which  in  turn  ex- 
tracts them  from  the  contract  governing  the  construction  of  the 
New  York  Rapid  Transit  Railway. 

In  brief,  it  is  provided  that  the  contractor  shall,  in  strict  conformity 
with  the  specifications,  construct  the  railway,  "  Including  therein  the  stations, 
side-tracks,  switches,  cross-overs,  terminal  yards,  and  all  other  appurtenance 
complete  and  ready  for  operation;  including  also  all  necessary  construction 
of  sewers  along  or  off  of  the  route  of  the  railway,  all  necessary  readjustments 
of  the  mains,  pipes,  tubes,  conduits,  subways,  or  other  subsurface  structures, 
the  support  and  care,  including  under-pinning  when  necessary,  of  all  buildings 
of  whatever  nature,  monuments,  elevated  and  surface  railways,  affected  by  or 
interfered  with  during  construction  and  reconstruction  of  street  pavements 
and  surfaces,"  and  that  the  contractor  shall  provide  a  .complete  equipment 
for  the  road  according  to  the  specifications. 

Provision  was  also  made  that  the  Commission  might  during 
construction  amplify  the  plans  and  specifications;  that  the 
acceptance  of  any  part  of  the  work  and  materials  did  not  relieve 
the  contractor  from  the  obligation  to  furnish  sound  materials  and 
good  work;  that  any  dispute  as  to  the  engineer's  valuation  of 
extra  work  and  material  was  to  be  submitted  to  arbitration;  the 
time  and  mode  of  payment  are  specified;  and  that  the  contractor 
should  be  personally  responsible  for  all  accidents  to  persons  and 
property. 

The  specification  covering  "  Waterproofing  "  *  is  worthy  of 
notice,  as  it  is  given  in  full,  and  outlines  the  methods  for  the 
highest  class  of  work  of  this  type.  It  is  recommended  as  a  source 
of  information. 

EXAMPLE  II 

472.  The  contract  chosen  as  the  second  example  was  framed 
to  cover  a  part  of  the  construction  of  a  large  work  of  far-reaching 
import  to  two  metropolitan  communities.     It  may  be  assumed, 
therefore,  to  represent  expensive  legal  and  engineering  services 
under  modern  conditions. 

(In  the  following  illustrative  material,  there  is  first  stated  the  subject  of 
each  clause  or  paragraph;  then  allied  matters  are  mentioned  which  may  be 
treated  in  the  same  paragraph.  The  matter  which  appears  in  parentheses 
is  given  by  way  of  illustrating  what  has  been,  or  may  be,  treated,  as  a  part  of 

*  Same  reference. 

284 


ENGINEERING   CONTRACT-WRITING  §  473 

or  cognate  to  the  same  subject.  As  brevity  and  compactness  of  statement  is 
the  one  thing  especially  striven  for  here,  the  reader  need  not  expect  that  every 
sentence  will  be  completely  rounded  out,  nor  that  he  will  not  frequently  need 
to  supply  a  missing  predicate,  or  to  carry  in  his  mind  the  "  subject  under- 
stood." Each  topic  is  numbered  for  convenience  of  reference,  merely.) 

It  should  be  noticed,  first,  that  by  advertisement  or  otherwise, 
certain  specific  information  is  given  to  bidders. 
473.   Charles  River  Basin,  Boston,   Mass. 
Points  covered  in  notice  "  Information  to  Bidders." 

(1)  Title.     States  what  is  to  be  placed  upon  the  sealed  bid. 

(2)  Place.     Tells  when  and  where  bids  will  be  received. 

(3)  Signature  and  Form.     Must  be  signed,  and  on  a  specific 
blank  form. 

(4)  Price.     The  price  of  each  item,  both  in  writing  and  figures, 
must  be  given. 

(5)  \_a]  Check.      A    certified    check    must    accompany    bid. 
(On  Bank   or   Trust   Company,   of   certain   place,  in  specified 
sum.) 

[6]  Forfeiture.  The  check  may  be  forfeited  under  certain 
named  conditions. 

(6)  Receipt.     Check  to  be  delivered  to who  will 

issue  voucher  for  the  deposit. 

(7)  Bond.     In  the  sum  of will  be  required  for 

faithful  performance. 

(8)  [a]  Execution.     Successful  bidder  is  to  execute  the  bond 
and  contract  within  (15)  days  from  time  notice  is  mailed  him  that 
contract  is  ready  for  signature. 

[6]  Forfeiture.  Failure  to  do  as  above  gives  owner  option  to 
determine  that  bidder  has  abandoned  contract,  and  proposal 
check  is  to  be  forfeited  to  ..."..  (Note:  Proposal  should  con- 
tain agreement  to  this  condition  upon  part  of  bidder.) 

(9)  Site.     Contains  description  of  test-piles,  and  wash-borings, 
with  their  location,  if  there  are  any. 

(10)  [a]  Quantities.     Gives  an  itemized  statement  of  quanti- 
ties estimated  by  the  engineer. 

[6]  Statement  that  all  bids  will  be  compared  on  the  basis  of 
this  estimate. 

(11)  Estimates.     \_CL]  Disavowal  of  warranty  as  to  accuracy  of 
quantities  stated.    [See  §§  415,  416.] 

[6]  Reservation  of  right  to  increase  or  decrease  amounts  as 
deemed  necessary  by  engineer. 

285 


§  474  CONTRACTS 

(12)  Unbalanced  Bidding.    Warning  against  contractor's  mak- 
ing unbalanced  bid.     (May  lead  to  rejection.) 

(13)  Rejection.     Right  is  reserved  to  reject  any  or  all  bids,  and 
to  award  to  party  whom  owner  believes  will  serve  his  interests  best. 

GENERAL  PROVISIONS  IN  CONTRACT 

474.  1.  Title  of  Work.  (Subject  matter  of  the  contract  [see 
§  471],  including  its  location.) 

2.  Parties.     Gives  names  and  description  of  them.     (Reciting 
Act  of  Legislature,  or  other  special  fact  establishing  competency 
of  either  party.) 

3.  Scope.    States  in  general  terms  extent  of  work  to  be  done. 
[§471.] 

4.  Definitions,     (a)  Who  are  meant  by  "  Commission,"  and 
"  engineer  "  ;    explains  what  is  included  in  "  Dam,"   "  Lock," 
"  Basin,"  "  Harbor  "  ;  what  base  is  used  as  "  Datum,"  and  what 
materials  shall  be  classified  as  "  rock  "  and  as  "  earth." 

The  aim  is  to  express  fully  the  scope  of  terms  employed.  This 
renders  construing  them  by  the  Court  unnecessary. 

(6)  Also,  who  is  meant  and  referred  to  by  the  words  "  As 
directed,"  "  as  required,"  "  as  permitted,"  etc.  And  who  has 
the  power  to  "  approve,"  "accept,"  "be  satisfied,"  etc.,  when 
the  work  is  required  to  be  "  acceptable,"  "  approved,"  "  satis- 
factory," etc. 

5.  Power  of  Engineer.    Aim  is  to  make  engineer's  judgment 
and  determination  final  and  conclusive  on  all  questions  that  may 
arise  under  the  contract.    Also  to  make  such  verdict  a  condition 
precedent  to  the  contractor's  receiving  any  money  under  the 
contract.    [See  §§  433,  438,  and  490.] 

6.  Occupancy  of  Site.     (Gives  the  limits  of  property  that 
may  be  occupied  by  the  contractor.) 

7.  Directions.     (Provision  that  superintendent  or  foreman  of 
contractor  shall  always  be  present  on  the  work,  and  that  orders 
given  him  shall  be  binding  upon  the  contractor,  should  he  be 
absent  from  that  place.) 

8.  Lines  and  Grades.     (To  be  given  by  engineer,  contractor 
giving  assistance,  and  furnishing  materials  for  the  same.) 

9.  Sanitation.     Suitable  conveniences  must  be  furnished  for 
laborers. 

286 


ENGINEERING   CONTRACT-WRITING  §  476 

10.   Cleaning-Up.     Site  to  be  carefully  cleaned  up  after  com- 
pletion of  work. 

475.  11.   Liquor.     (Use  of  liquor  by  workmen  prohibited.) 

12.  Ambiguity.     Inconsistencies    between    plans    and    speci- 
fications are  to  be  explained  by  the  engineer,  whose  interpretation 
shall  be  binding  upon  the  contractor.     [See  §  490.] 

13.  Time,     [a]  Time  of  entering  upon  and  of  discharging  the 
contract. 

[6]  Statement  to  the  effect  that  time  is  "  of  the  essence." 
[c]  Completion  by  stages  at  stated  times.     [See  §  418.] 

14.  Accessibility.     Access  to  be  permitted  to  the  work  at  all 
times  to  owners,  their  agents,  or  engineers. 

15.  Defective  Work.     (Inspection  by  engineer  shall  not  re- 
lieve contractor;  he  must  make  his  work  good  any  time  before  its 
final  acceptance  if  it  has  been  overlooked.     See  §  422.)     Con- 
demned materials  to  be  removed. 

16.  Ownership.     Title  of  materials  annexed  to  the  soil  to  pass 
to  owner,  i.e.,  other  party  to  contract.     [See  §  181.] 

17.  Workmen.     Only  competent  workmen  to  be  employed; 
to  be  discharged  for  cause  by  engineer. 

18.  Delay.     (If  by  agreement  either  party  is  to  secure  posses- 
sion of  the  site,  delay  by  him  in  doing  so  shall  not  entitle  other 
party  to  damages,  but  extend  the  time.)     [See  §  492.] 

19.  Legal  Restrictions.     Burden  is  placed  on  contractor  to 
keep  fully  informed  on  State,  municipal,  or  National  laws  or  ordi- 
nances (whether  existing,  or  made  during  existence  of  the  contract), 
which  affect  men  or  materials  employed  under  it.     [See  §  25  and 
Appendix  Note  6.] 

476.  20.   Laborers.      [a]  It    is    stated    whether    and    what 
preference   there   is  for  laborers  of  any  specified  residence  or 
nationality.  » 

[6]  Hours  of  labor  are  defined.     Farming  out  of  commissary 
forbidden ;  laborers  to  board  where  they  choose. 

21.  Supervision,     [a]  Personal  attention  of  contractor  is  re- 
quired.    States  under  what  conditions,  if  at  all,  subletting  will 
be   permitted;    and  when  subcontract   may  be   terminated  by 
engineer. 

[6]  Contractor  to  be  authorized  to  pay  subcontractor's  em- 
ployees,  if  latter  defaults. 

22.  Alterations.     Changes  may  be  made  by  the  engineer  be- 

287 


§  476  CONTRACTS 

fore  or  after  beginning  work  without  claims  for  damages  or  loss  of 
profits  by  the  contractor.     [See  §§  109  and  424.] 

23.  Indemnity.     Aim  is  merely  to  make  the  contractor  "  in- 
dependent."    [See  §  172,  etc.]     (Contractor  shall  take  the  risk  of 
injury  to  persons  or  property  on  or  about  the  work,  and  shall  save 
owners  harmless  in  all  suits  for  labor  or  materials,  patent  rights, 
inventions,  etc.,  used  on  the  work.) 

24.  Abrogation.     States  what  shall  constitute  abandonment; 
what  the  effect  of  assigning  the  contract  shall  be;  or  that  if  there 
is  unsatisfactory  rate  of  progress,  or  violation  of  contract  pro- 
visions, contractor  may  be  ordered  to  quit.     (See  §  105.) 

25.  Default  and  Completion.     If  contractor  defaults,  it  is  pro- 
vided how  completion  may  be  made.     (It  is  generally  at  the 
expense  of  the  contractor,  the  owner  using  his  plant  to  do  so. 
Money  expended  in  this  way  shall  be  deducted  from  any  due  the 
contractor,  and  if  amount  is  insufficient,  contractor  shall  make  it 
up.     [See  Appendix  Note  7.] 

26.  Liquidated  Damages.     The  sum  to  be  paid  as  liquidated 
damages  is  stated,  and  also  the  conditions  under  which  payment 
of  the  same  shall  become  due.     [See  Appendix  Note  9  and  §  496.] 

27.  Extras.     States  how  price  of  extras  is  to  be  determined. 
(Cost  plus  15%;  engineer  to  have  access  to  all  accounts;   state- 
ments for  extras  must  be  made  before  15th  of  month.)     [§  116.] 

28.  Estimates,     [a]  To  be  made  when.     (If  work  has  been 
done,  and  materials  of  certain  kinds  delivered  during  the  month, 
then  monthly  estimate  to  be  made.     Payment  of  estimate  is  to 
transfer  title  in  the  materials,  but  this  is  not  allowed  to  prevent 
the  engineer  from  rejecting  the  same,  if  not  good.)     15%  of  pay 
to  be  retained  until  it  amounts  to [See  §§  494-5.] 

[6]  Estimate  Excused  (if  certain  amount  has  not  been  done 
since  last  estimate). 

[c]  Estimates  Oftener.  (May  be  made  if  deemed  necessary 
by  engineer,  or  to  assist  contractor  to  better  meet  payroll.) 

\_d]  Final  Estimate  and  Final  Payment.  (When  this  shall  be 
made;  partial  estimates  and  payments  corrected  in  final.) 

29.  Payment.     Last  payment  to  terminate  responsibility  of 
owner.     [See  §  121  and  §§  494-5.] 

30.  Waiver.     No   inspection,    orders,   measurement,   or   cer- 
tificate made  by  the  engineer,  nor  any  payment,  acceptance,  in 
whole  or  in  part,  nor  extension  of  time,  nor  taking  of  possession  by 

288 


ENGINEERING    CONTRACT-WRITING  §  478 

the  owner,  shall  operate  as  a  waiver  of  the  conditions  of  this  con- 
tract, or  of  any  right  to  damages  herein  provided  for.  And 
waiver  of  one  breach  shall  not  be  waiver  of  another  breach. 

31.  Remedies.  All  remedies  herein  mentioned  are  to  be 
taken  as  cumulative,  and  each  in  addition  to  the  other,  but  not 
in  place  of  it. 

477.  Next  follow  the  Specifications  [General  Clauses]. 

1.  [a]  General  Description  of  the  work,  giving  the  salient  fea- 
tures of  its  construction,  and  the  inter-relation  of  its  principal 
parts. 

[6]  General  plan  of  procedure  in  erection.  (As  where  mate- 
rials will  come  from,  be  disposed  of,  etc.) 

[c]  Wrecking  and  removal  of  existing  structures  which  are 
covered  in  this  contract. 

[d]  Reference  to  place  (in  contract)  where  the  specific  related 
things  will  be  found  which  contractor  is  not  required  to  do. 

2.  [a]  Refers  to  general  plans  of  the  work,  i.e.,  incorporates 
them,  identifying  them  by  title,  numbers,  signatures  thereon,  and 
date  of  making.     (States  where  they  may  be  found.) 

[6]  Detail  Plans.     (To  be  furnished  later  by ) 

[Specific  Clauses] 

3.  Gives  more  specific  description  of  the  work. 

478.  Coffer  Dams. 

4.  Location. 

5.  [a]  Gives   contractor  permission   to   build   stronger   and 
better,  or  to  change  design  upon  approval  by  engineer. 

[6]  Requiring  contractor  to  assume  risk  of  sufficiency  of  dams. 
(In  design  or  execution.)  (But  see  §  456.) 

6.  Guide  Piles.     Quality  and  sizes  of  timber,  spacing,  bearing, 
alignment  and  replacing  of  broken  or  improperly  driven  ones. 

7.  Sheet  Piles.     Quality,   and  rules  for  inspection;    cutting 
off  splines  (modes  of  fastening)  grooves. 

8.  Metal.     Ultimate    strength,    and    quality.     Upsetting    of 
ends  (may  be  required)  of  tie-rods. 

9.  Earth  Filling.     Quality  of  earth  required,  both  inside  and 
outside  of  dam.     Finished  grade,  or  elevation  of  earth.     . 

10.  Sewers.     (Sewer  outlets  or  connections.) 

11.  Removal  of  existing  structures  on  site  of  dam.     Owner- 
ship of  materials  (or  may  be  re-used). 

289 


§  479  CONTRACTS 

12.  [a]  Pumping  Out.    Slips  of  material  provided  against. 
Extra  bracing  (may  be  required).     Kept  free  from  water,  and  dam 
maintained  in  good  condition. 

[6]  Pumping  for  other  contractors  paid  for  extra. 

13.  Removal  of  Dam.    What  may  be  left  in  place. 

14.  Price  for  dams  includes  what.     (Constructing,  maintain- 
ing, and  removal  of  same.    Also  temporary  sewers  and  pumping.) 

479.  Earth  Excavation. 

15.  Required  for  what  purposes,  and  structures  in  or  adjacent 
to  dam.     Dimensions  of  excavation,  or  grade  for  same. 

16.  Dredging,  where  required,  and  under  what  conditions  it 
becomes  "  extra  work." 

17.  [a]  Extra  Earth  for  filling;   where  obtained.     Final  dis- 
position of  earth  (in  dam,  or  elsewhere),  rehandling  of  earth. 

[6]  Use  of  hyraulic  plant  for  back-filling. 

[c]  Prevention  of  washing  of  materials  by  current. 

[d]  Settlement   of  fill  to  be  brought  to  grade.    No   frozen 
material  (without  permission  from  engineer). 

18.  Measurement  of  Earth.     How  made. 

19.  Price  of  earth  excavation  includes  what.     (Pumping,  bail- 
ing, damming,  ramming,  grading  of  surface). 

480.  Rock  Excavation. 

20.  [a]  Where  required.     Care  in  blasting.     Time  of  blasting. 
[6]  Storage  of  caps  and  explosives  separately.      Precautions 

may  be  ordered  by  engineer  in  addition  to  city  ordinances, 
[c]  Disposal  of  rock.    Measurement  of  excavation. 

21.  [a]  Riprap.     Sizes  and  quality  of  stones  required.    Diver 
(may  be  required) .     Paid  for  by  ton  in  place. 

[6]  Price  includes  what.     (Obtaining,  transporting,  and  de- 
positing, and  all  other  incidental  expenses  thereto.) 

481.  Foundation  Piles. 

22.  Where  required  in  the  work. 

23.  Kind  and  quality  of  timber.    Spacing  and  alignment  (or 
as  on  plan)  satisfactory  bearing  (or  depth).    Water-jet,  shoes  or 
steam  hammer  may  be  required. 

24.  Piles  tied  together  before  filling.     Height  of  cut-off;  sound 
un-broomed  heads  required.    Vertical  and  batter  piles. 

25.  Test  piles  may  be  required.     (Extra.) 

26.  Piles  measured  and  paid  for  how. 

290 


ENGINEERING   CONTRACT-WRITING  §  484 

Sheet  Piling. 

27.  Dimensions  and  quality  of  timber.     Variety.     Drive  by 
water  jet  (?)     How  measured.     (In  place  without  allowance  for 
waste.) 

28.  Price  includes  what.     (Furnishing,  driving,  bracing  and 
incidentals  thereto.) 

482.  Cement. 

29.  Inspection  and  tests  by  engineer.    Well-known  brands. 
Rejection  of  inferior  brands. 

30.  [a]  30-day  supply  on  hand,  allowing  28-day  tests. 
[6]  Lots  stored  separately  in  dry  place. 

31.  Sand,  —  clean,  sharp,  coarse,  no  pebbles. 

32.  Broken  stone,  or  gravel,  for  concrete;    sizes,  screening; 
amount  of  fine  materials  allowable. 

33.  Measuring  of  sand,  stone  and  cement  for  mortar  and  con- 
crete. 

34.  Mortar.    Purposes  and  proportions;  mode  of  mixing. 

483.  Concrete  Masonry. 

35.  Where  used. 

36.  Quality  and  proportions  of  materials. 

37.  [a]  Mixing  and  placing.     (In  layers,  but  continuously. 

Under  water;  hand  or  machine  mix;   Inspection  by ; 

wet  or  dry.) 

[6]  How  in  cold  weather?  sprinkling  in  dry  weather. 

38.  Bonding  to  Old  Work.     (Roughen;  clean;  mortar  or  grout 
coat.) 

39.  [a]  Finish  of  Exposed  Surfaces.     (Smooth  forms,  oiling, 
spading;  pointing,  floating,  skim  coat;  skilled  labor.) 

[6]  Granolithic  Work.     Mode  of  execution.     (As  extra?) 

40.  Expansion  Joints.     (Where  needed,  and  how  formed.) 

41.  Waterproofing.     Where  required;  type  called  for. 

42.  Price  includes  what.     (Measured  in  place.) 

484.  Ashlar  Masonry.    [In  general,   see  Baker's  Masonry, 
specials  below.] 

43.  Uniform  Coloring  of  Stone.    Sample  to  be  approved  by 
engineer  in  writing.     Evidence  that  quarry-supply  is  sufficient. 

Pipes,  and  Ducts  for  Electric  Conduits. 

44.  Single  or  multiple  ducts;  cross-section  what;  quality;  lay- 

291 


§  485  CONTRACTS 

ing;  inspection  (just  before  laying).     Kept  clear  of  mortar  when 
laid;  use  of  mandrel  and  rods. 

45.   How  measured;  price  includes  what. 

MISCELLANEOUS  CLAUSES 

Before  taking  up  the  next  example  of  Contract- Writing  a  few 
special  topics  will  be  considered.  These  matters  are  not  especially 
interrelated,  and  as  the  possible  list  is  an  interminable  one,  no 
claim  is  made  here  for  completeness.  The  list  merely  contains 
certain  points  where  difficulty  has  been  met. 

485.  Subletting.  —  "  The  contractor  cannot  sublet  any  por- 
tion of  the  work  without  previous  consent  of  the  city  council  in 
writing/'  —  yet  why  does  this  old  clause  persist?  ask  the  editors 
of  Engineering-Contracting  (November  3,  1909),  who  then  proceed 
to  handle  the  subject  upon  its  merits. 

"  The  object  of  the  city  in  letting  a  contract  is  to  get  the  work  done  in 
accordance  with  the  plans  and  specifications,  and  there  should  be  no  objec- 
tions made  to  subletting.  The  contractor  should  be  permitted  to  do  the  work 
in  any  manner  provided  he  is  held  strictly  accountable.  A  general  clause  to 
the  effect  that  the  city  council  will  not  recognize  any  person  except  the  con- 
tractor and  will  hold  him  throughout  to  a  proper  completion  of  the  work  will 
cover  all  that  the  clause  here  referred  to  is  intended  to  cover. 

"  Such  clauses  do  not  in  fact  prevent  work  from  being  assigned,  transferred, 
conveyed,  sublet,  or  otherwise  disposed  of,  *  *  *  if  the  contractor  deems  it 
to  be  to  his  interest  to  so  dispose  of  any  of  his  right,  title,  or  interest  therein 
to  any  person;  company,  or  corporation.  In  fact  circumstances  sometimes 
arise  in  which  it  is  highly  desirable  that  something  of  this  sort  be  done.  What 
is  wanted  in  specifications  is  a  little  less  legal  verbiage  and  more  good  judg- 
ment." 

486.  Arbitration  Clauses.  —  Taken  as  a  whole,  the  subject  of 
arbitration  in  reference  to  engineering  contracts  is  in  a  rather 
confused  and  unsatisfactory  condition,  though  much  discussion 
has  been  given  it.     The  tendency  of  such  clauses  is  to  contravene 
the  principles  of  public  policy,  and  they  may  be  regarded  as  tend- 
ing to  oust  the  courts  of  their  proper  jurisdiction.     (See  §  33,  etc.) 
This  element  of  public  policy  involved  in  arbitration  clauses  is  the 
precise  reason  why  the  courts  have  refused  to  carry  out  some  pro- 
visions, and  why,  therefore,  the  subject  is  in  such  an  unsettled 
state.    A  few  suggestions  only,  such  as  may  assist  in  avoiding 
difficulties,  will  be  attempted  here. 

487.  Speed,  fairness,  and  economy  can  usually  be  obtained 
better  by  arbitration  than  by  recourse  to  the  slow  and  cumber- 
some process  of  law.     Hence  arbitration  grows  in  favor  upon  im- 

292 


ENGINEERING    CONTRACT-WRITING  §  489 

portant  construction  contracts.  Greater  simplicity  and  satis- 
faction will  result  if  the  contract-writer  first  decides  carefully,  and 
with  due  regard  to  precedent,  in  just  what  matters  the  engineer 
is  to  have  sole  authority.  Next,  all  matters  likely  or  liable  to 
arise  which  may  require  arbitration  should  be  systematically  con- 
sidered and  enumerated.  Finally,  the  method  of  choosing  the 
arbitrators,  and  the  mode  of  making  an  appeal  to  them  should 
be  clearly  stated. 

Thus,  it  is  not  undesirable  to  except  from  the  agreement  to  arbitrate 
questions  as  to  the  fitness  of  materials  or  workmanship,  the  competency  of 
any  persons  or  methods  employed;  progress  of  the  work,  or  delays  affecting 
it,  or  opening-up  work  for  inspection,  wherein  for  administrative  purposes 
the  engineer  should  be  vested  with  strict  control. 

The  plan  of  arbitration  should  recognize,  however,  that  it  is  a  matter 
wherein  the  courts  will  grudgingly,  if  at  all,  give  their  support  if  the  parties 
intend  thereby  to  "  contract  themselves  out  of  court,"  for  reasons  of  public 
policy,  as  suggested  in  §  33.  Arbitration  may  be  made  a  condition  precedent, 
by  agreement,  to  litigation  in  court,  but  in  general  the  courts  will  not  enforce 
a  contract  which  precludes  them  from  reviewing  the  arbitrator's  findings. 

Problems.  (1)  Write  an  arbitration  clause  as  to  classification  of  materials 
in  sewer-ditch  excavation.  Assume  that  quick-sand,  clay,  loam,  and  solid 
and  loose  rock  have  all  been  described  and  defined  in  the  "  classification." 

(2)  Write  a  clause  embodying  the  suggestion  in  last  paragraph  of  §  490. 

488.  A  useful  arbitration  clause,  taken  from  English  practice,  provides 
that  no  appeal  to  an  outside  arbitrator  shall  be  made  during  the  progress 
of  the  work,  but  that  disputes  arising  out  of  any  matter  contained  in  the 
contract  shall  be  temporarily  decided  by  the  engineer,  subject  to  further 
settlement  at  the  hands  of  a  referee  after  the  work  is  done.     This  tends  to 
prevent  any  disputed  matters  from  causing  any  delay  in  the  work. 

About  the  only  practical  brief  suggestion  that  can  be  given  in 
reference  to  arbitration  is  to  the  effect  that  blanket  clauses,  grant 
ing  unlimited  authority  to  the  engineer  as  arbitrator,  are  not 
likely  to  be  enforced  by  the  courts.  Perhaps  a  sure  way  to  avoid 
trouble  is  for  the  contract-writer  to  place  himself  in  the  position  of 
the  contractor,  and  in  all  fairness  ask  if  he  himself  would  be  willing 
to  acquiesce  in  the  provisions  made.  . 

489.  Excessive   Risks.  —  (See  also   §  426.)     Constructing  Government 
dams  on  waterways  specially  liable  to  floods  is  a  good  example  of  excessive 
risks.     These  contracts  generally  give  payment  for  a  temporary  coffer-dam. 
If  washed  away,  it  must  be  replaced  at  the  contractor's  expense,  and  all  other 
flood  damages  are  to  be  borne  by  him.     The  inherent  gamble  in  the  work 
precludes  most  contractors  from  bidding,   and  requires  careful  studies  of 
average  weather  conditions  in  the  watersheds  involved.     If  the  weather  dis- 
regards the  averages,  the  contractor  loses    big   sums,  since  he  gambles  on 
average  conditions.     If  they  prove  more  favorable  than  the  average,   the 
contractor  makes  a  handsome  profit.     If  worse,  as  where  eleven  heavy  floods 
on  the  Ohio  occurred,  where  only  two  rises  were  to  be  expected,  the  con- 
tractor loses  heavily. 

The  Government  ought  only  to  pay  a  reasonable  value  for  its  work,  but 
ought  the  contractor  to  lose  thousands  of  dollars  through  agencies  beyond 

293 


§  490  CONTRACTS 

his  control?  These  contracts  should  provide  fair  pay  for  flood  damage.  If 
there  were  none,  the  Government  would  not  be  paying  the  big  contingent 
possible  loss,  but  if  there  were,  the  contractor  would  be  reimbursed  merely 
for  his  loss.  Where  damages  may  occur  through  unforeseen  acts  of  Nature, 
the  community  to  be  benefited  by  the  work  should  assume  payment  for  the 
damage. 

Problem.  Write  a  clause  which  shall  cover  this  matter  fairly  to  all  the 
parties  concerned. 

490.  Engineer's  Authority.  —  It  is  not  unusual  to  have  a  con- 
dition that  the  engineer  shall  have  the  exclusive  right  to  authori- 
tatively determine  the  meaning  of  the  contract.    Such  a  pro- 
vision is  often  rather  unsatisfactory  to  the  contractor  for  num- 
erous reasons,  but  unless  it  could  be  shown  that  the  engineer  had 
deliberately  shown  prejudice,  or  partiality,  the  provision  would 
probably  stand. 

From  the  engineer's  view-point,  the  chief  advantage  of  such  a 
clause  is  that  it  supplies  a  summary  means  of  remedying  the  faults 
and  supplying  the  omissions  in  a  badly-drafted  specification. 

An  arrangement  suggested  as  being  more  likely  to  satisfy  both 
parties  is  for  the  engineer  to  have  final  decision  as  to  workmanship 
and  materials,  and  to  provide  for  an  outside  arbitrator  on  all 
matters  relating  to  payment,  extras,  contractor's  delays,  altera- 
tions, etc.  There  seems  much  to  commend  this. 

491.  Opening  up  Completed  Work.  —  It  sometimes  happens 
that  work  which  has  been  carefully  done  will  be  buried  up  before 
it  has  received  inspection.    The  same  is  also  true  at  times  with 
work  that  has  been  deliberately  scamped.     Thus  it  is  possible 
for  both  sides  to  err  in  their  zeal,  and  a  hardship  may  be  done  if 
in  framing  the  contract  provisions  it  is  not  recognized  as  possible 
that  mistakes  may  be  made.     For  plainly  if  the  work  is  ordered 
opened  up  and  proves  satisfactory  then  the  contractor  should  be 
compensated,  not  for  damages,  nor  yet  as  salve  for  affronted  inno- 
cence, but  just  for  extra  work  done.    But  if  there  is  no  provision 
regarding  the  matter,  it  is  apt  to  be  just  so  much  more  induce- 
ment to  tricky  contractors  to  bury  their  work  as  hastily  as  possible. 
Contract-writers  recognize  the  question  as  one  of  some  perplexity. 
It  has  been  suggested  that  perhaps  the  fairest  method  is  to  pre- 
scribe that  if  the  work  upon  being  opened  up  is  found  satisfactory, 
the  labor  required  shall  be  charged  as  an  extra.    But  if  it  is  found 
not  to  be  in  accordance  with  specifications,  then  the  cost  of  so 
opening  shall  be  borne  by  the  contractor,  together  with  the  re- 
quirement that  he  shall  make  good  the  defective  work. 

294 


ENGINEERING   CONTRACT-WRITING  §  494 

492.  Extension  of  Time.  —  An  extension  of  time,  equal  to  the 
time  the  contractor  may  be  delayed  for  certain  specified  causes  is 
often   granted.     The   following   are   reasons   often   enumerated, 
though  it  may  rarely  be  that  any  one  of  them  will  actually  happen : 
"Act  of  God  ";   exceptionally  inclement  weather  suspension  by 
order  of  the  engineer  pending  litigation  (threatened  or  actual) 
with  adjacent  owners;  delay  due  to  the  interference  of  other  con- 
tractors; or  by  the  construction  of  duly  authorized  extras ;  strikes 
of  workmen,  when  not  caused  by  the  fault  or  collusion  of  the 
contractor;    or  if  the  contractor   shall  not  seasonably  receive 
written  instructions  when  he  has  duly  applied  to  engineer  for 
them,  declaration  of  a  state  of  war,  etc. 

493.  Termination  of  Contract  by  the  Contractor.  —  Mr.  Barn- 
ford  (Proc.  Am.  Soc.  C.  E.,  Vol.  XXXV,  p.  1343)  remarks  that  few 
American  contracts  contain  any  provision  for  terminating  a  con- 
tract under  any  conditions  whatever.     In  fact,  he  says,  most  con- 
tracts are  filled  with  clauses  designed  to  bind  the  contractor  hand 
and  foot  so  that  no  matter  what  happens,  he  is  certain  to  remain 
a  party  to  the  contract.     He  suggests  that  the  great  unfairness  of 
such  provisions  can  only  be  accounted  for  by  supposing  them  to 
be  inherited  from  times  when  work  and  conditions  were  totally 
different  from  those  existing  to-day. 

He  submits  a  clause  fair  to  both  parties,  in  which  it  is  provided 
that  the  contractor  may  quit  upon  non-payment  by  the  owner 
of  the  stipulated  amounts  when  due,  after  giving  notice  in  writing 
to  the  owner  of  said  non-payment.  The  contractor  should  have 
the  same  privilege  if  the  owner  should  become  bankrupt,  or  if  the 
work  be  stopped  more  than  a  certain  length  of  time  by  order  of 
the  engineer  or  owner,  or  by  decree  of  a  court  of  law.  In  the  event 
of  any  of  these  contingencies  the  contractor  is  entitled  (and  it 
should  be  so  provided),  to  recover  the  full  value  for  all  work  done 
up  to  that  time,  and  for  all  materials  furnished  on  account  of  that 
work.  He  is  entitled  to  be  compensated  for  any  damages  sus- 
tained by  him  either  by  purchase  of  equipment,  or  otherwise, 
suffered  on  account  of  this  contract.  (See  §  106.)  * 

494.  Payments.  —  The  manner  of  payment  may  be  varied  in 
many  ways  to  suit  the  particular  circumstances.     It  is  essential 
that  the  provisions  shall  enable  the  contractor  to  demand  and  to 

*  Problem.  Write  a  clause  embodying  the  conditions  under  which  you 
think  it  fair  for  the  contractor  to  quit. 

295 


§  495  CONTRACTS 

obtain  his  money  as  readily  as  they  enable  the  owner  to  obtain 
the  work  for  which  he  pays. 

It  is  desirable  and  proper  to  provide  that:  "  Before  the  .  .  . 
day  of  each  month,  the  contractor  may  submit  to  the  engineer  a 
written  statement  showing  (a)  the  value  of  the  work  and  materials 
actually  wrought  into  the  work  up  to  the  first  of  the  month,  and 
(6)  the  value  of  the  materials  delivered  at  the  site  but  not  incor- 
porated into  the  work,  deducting  the  aggregate  of  previous  pay- 
ments." It  is  then  provided  that  the  engineer  shall  issue  a  cer- 
tificate on  or  before  such  a  date,  and  that  a  certain  percentage 
of  the  money  due  shall  be  retained  until  the  amount  so  retained 
amounts  to  a  certain  sum,  after  which  all  moneys  becoming  due 
shall  be  paid  in  full.  It  is  also  not  uncommon  to  provide  that  upon 
final  adjustment  of  accounts  at  completion  of  the  work  a  certain 
sum  is  to  be  retained  by  the  owner  for  the  purpose  of  making 
good  any  defects  in  the  work  which  may  develop  within  a  specified 
time,  failing  which  the  balance  is  then  paid  the  contractor. 

495.  The  idea  of  retaining  percentages  until  the  end  of  the 
work  is  intended  to  insure  proper  completion.     The  American 
practice  of  retaining  an  unchanging  amount  throughout  is  often 
a  real  hardship  on  the  contractor,  and  serves  no  useful  purpose 
after  the  work  has  been  approximately  half  completed,  unless 

special  sums  are  retained  to  cover  known  defects. 

i 

In  this  connection  the  General  Contractors'  Association  of  New  York  has 
recently  suggested  the  insertion  of  a  clause  to  the  effect  that  6%  interest 
shall  be  paid  to  contractors  upon  overdue  payments,  the  interest  to  be  com- 
puted from  the  time  money  is  due  until  it  is  paid.  This  is  a  reasonable  re- 
quest, since  it  saves  the  loss  of  interest  on  the  funds  they  would  otherwise  be 
obliged  to  borrow  for  running  expenses.  If  also  benefits  the  other  party  to 
the  contract,  since  a  failure  to  make  payments  when  due  does  not  then  con- 
stitute a  breach,  as  it  must  do  if  the  agreement  is  to  pay  unconditionally  at  a 
fixed  date. 

496.  Liquidated   Damages.  —  In    conjunction   with   the   ex- 
tended discussion  given  elsewhere  (see  Appendix  Note  9),  the 
following  clause  is  offered.     It  is  suggested  by  Mr.  Bamford  that 
it  may  be  going  as  far  as  is  advisable  toward  obtaining  just  and 
reasonable  damages  for  delay  in  completion.     Certainly  no  one 
could  object  to  its  fairness. 

"  The  contractor  agrees  that  the  time  for  the  completion  of  the  work 
shall  be  considered  as  of  the  essence  of  the  contract  and  he  agrees  that  for 
liquidated  damages  he  will  pay  the  owner  for  the  cost  of  all  extra  inspection, 
and  for  all  amounts  paid  for  rents  (when  completed  building  is  to  be  rented), 

296 


ENGINEERING    CONTRACT-WRITING  §  496  A 

or  for  more  protracted  services  on  the  part  of  the  engineer,  or  other  employee 
of  the  owner  kept  on  the  work,  and  other  expenses  entailed  on  the  owner 
by  reason  of  the  delay  in  completing  the  work." 

The  owner  is  then  authorized  to  retain  such  sums  as  will 
cover  the  foregoing  damages  provided  that  the  maximum  so 
claimed  shall  not  exceed  a  stated  amount.  If  this  stated  amount 
is  exceeded,  then  the  whole  matter  is  to  be  handled  by  arbitration, 
and  the  foregoing  is  inapplicable.* 

496  A.  Contractor's  Salary,  and  Overhead.  —  When  a  calling 
has  professional  rank  it  is  recognized  that  individuals  engaged 
therein  are  qualified  by  long  study  and  experience  to  be  classed  as 
experts,  capable  of  understanding  and  undertaking  difficult 
problems.  He  should  be  compensated  in  direct  proportion  that 
he  is  able  to  save  time  and  money  for  the  man  who  engages  him. 

To  accomplish  these  things  the  contractor  employs  assistants, 
and  contributes  his  own  services  and  experience,  as  any  profes- 
sional man  would  do.  To  be  able  to  command,  and  to  furnish* 
this,  the  "  overhead  "  of  any  undertaking  must  clearly  provide 
salaries,  as  a  distinct  item  beyond  rent,  interest,  or  any  other 
expense.  Nor  can  it  come  out  of  "  profit/'  since  the  definition 
of  business  is  an  undertaking  to  which  risk  is  attached,  and 
which  is  attempted  in  order  to  result  in  a  profit.  Thus  over- 
head cannot  include  a  probable  loss  on  any  job.  "  Profit "  is 
solely  the  necessary  compensation  over  and  above  every  other 
expense  to  warrant  assuming  the  risk  involved.  It  is  a  bonus 
over  and  above  overhead  and  labor,  rightfully  earned  for 
assumption  of  the  undertaking. 

*  There  is  an  extensive  discussion  of  Liquidated  Damages  and  Penalties, 
particularly  referring  to  government  contracts,  by  Mr.  G.  A.  King,  in  Engineer- 
ing Record,  Vol.  58,  p.  383.  He  also  treats  of  the  bearing  of  Alterations  upon 
the  time  limit  in  an  illuminating  way.  The  whole  article  is  an  able  one,  and 
well  worthy  of  careful  study. 


297 


APPENDIX  NOTES 

App.   Note  1.    (See  §  21  Footnote.)    Legal  Aspects  of  Modern  Technical 
Problems. 

In  the  engineering  field  a  learned  judge  has  said,  "  New  technical  questions 
are  arising  [such  as  electrolysis,  for  instance],  and  we  are  without  precedents 
in  decided  cases  for  our  guidance,  but  as  these  new  questions  arise  the  admin- 
istration of  the  law  should  keep  step  with  the  new  situations  arising  in  the 
march  of  scientific  invention  and  improvement,  not  by  inventing  new  legal 
principles,  but  by  the  expansion  of  old  and  well-recognized  principles  of  law 
and  equity  so  as  to  meet  and  cover  the  new  situations.  It  would  be  a  reproach 
to  our  system  of  jurisprudence  and  the  administration  thereof,  if  a  situation 
could  arise  in  which  large  and  material  injury  should  be  done  to  legal  rights  and 
destruction  caused  to  property  and  the  law  be  powerless  to  apply  a  remedy." 
App.  Note  2.  Arbitration  Clauses.  (§  33.) 

In  connection  with  this  topic  of  public  policy,  and  its  relation  to  arbitra- 
tion clauses,  see  the  article  on  Engineers,  Contractors  and  Specifications,  by  Mr. 
Willis  Whited,  in  Eng.  News  of  November  13,  1902.  He  makes  the  follow- 
ing very  pertinent  remarks:  "  It  is  pretty  generally  held  by  the  courts  that  no 
provisions  in  a  contract  can  oust  the  courts  of  their  jurisdiction.  The  pro- 
visions making  the  engineer  sole  judge  of  disputed  points  are  held  valid,  with 
the  reservation  that  the  engineer  is  to  exercise  his  judgment  in  good  faith, 
and  not  in  an  arbitrary  or  oppressive  manner.  Of  course,  the  burden  rests 
upon  the  contractor  to  prove  that  these  conditions  are  not  fulfilled. 

"  Most  intelligent  jurists  recognize  the  fact  that  when  a  man  lets  a  contract 
for  a  building,  for  example,  he  wants  a  building  and  not  a  lawsuit;  that  ques- 
tions frequently  arise  which  must  be  decided  on  the  spot  by  somebody  if  any 
work  is  to  be  accomplished;  and  that  they  can  be  far  better  decided  by  the 
architect  or  engineer  who  is  familiar  with  all  the  circumstances  than  by  any 
court  or  jury,  especially  as  they  are  usually  technical  questions.  Courts 
usually  favor  settling  disputes  by  arbitration,  and  if  provision  for  arbitration 
is  made  in  the  contract,  it  will  almost  always  be  sustained  in  the  absence  of 
fraud,  —  and  the  complainant  must  prove  the  fraud." 
App.  Note  3.  (§  34.)  PUBLIC  POLICY,  in  connection  with  Railroad  Passes. 

With  reference  to  matters  indifferent  to  the  public,  the  parties  may  con- 
tract according  to  their  own  pleasure,  but  they  cannot  do  so  when  the  public 
has  an  interest  in  the  matter.  That  is,  certain  duties  are  attached  by  law  to 
certain  employments,  and  these  cannot  be  waived  nor  dispensed  with  by  in- 
dividual contract.  In  this  class  is  the  duty  of  a  carrier  to  carry  passengers 
safely,  etc.  The  boundaries  of  the  domain  within  which  rules  of  public  policy 
will  apply  are  elastic,  and  this  adds  to  the  difficulty  of  the  question. 

In  150  Massachusetts  365  (A.  D.  1890)  a  man  asked  for  a  free  pass  which 
was  given  him  on  condition  that  he  released  the  Railroad  Company,  which 
he  used,  thus  accepting  its  terms.  It  is  said  that  no  sound  public  policy  was 
contravened  by  the  Company's  stipulating  that  it  should  be  released  from 

299 


Note  4a  APPENDIX  NOTES 

liability  in  this  case,  since  it  was  doing  all  it  could  reasonably  be  held  to  do  by 
giving  the  ride  for  nothing,  —  the  public  had  no  rights  which  could  be  harmed 
by  such  an  agreement,  and  hence  such  an  agreement  was  not  contrary  to  pub- 
lic policy.  In  this  case  he  was  not  a  passenger  for  hire. 

The  United  States  Supreme  Court,  in  Stevens  v.  Railroad  Company,  in 
1877,  defines  more  clearly  what  a  passenger  for  hire  is.  Here,  Stevens  made 
a  contract  with  X,  wherein  a  part  of  the  consideration  was  that  Stevens  should 
go  to  Montreal  from  Portland,  Me.,  and  that  X  should  pay  all  his  expenses, 
including  of  course,  his  railroad  fare.  Now  X  was  the  Railroad  Company,  and 
as  a  fact  it  gave  him  a  pass  in  the  ordinary  form,  i.e.  with  release  for  the  Com- 
pany's negligence,  etc.  The  fact  that  on  the  face  of  matters  the  pass  did  not 
cost  Stevens  anything  makes  it  look  like  a  free  pass,  but  he  was  held  not  to  be 
a  free  passenger  at  all,  since  the  true  relation  of  the  parties  was  as  though  the 
Railroad  Company  had  handed  him  the  cash  with  which  to  buy  his  ticket. 
Hence  the  release  was  invalid,  and  the  Company  was  liable  for  negligence. 

In  64  Massachusetts  228,  decided  in  1852,  the  proposition  is  laid  down  that 
where  a  laborer  was  being  carried  to  and  from  his  work  on  the  gravel  train, 
he  was  not  in  any  way  a  passenger  for  hire,  because  in  general  the  laborer 
should  get  to  the  work  himself.  He  was  within  the  fellow-servant  rule,  i.e. 
Company  was  not  liable  for  injury  received  through  the  engine  driver's  neg- 
ligence by  reason  of  which  there  was  a  collision  and  the  laborer  (plaintiff)  was 
run  over. 

The  case  of  a  civil  engineer  working  for  a  railroad  would  seem  to  fall 
under  the  rule  of  Stevens  v.  Railroad  Company,  since  it  is  undoubtedly  a  part 
of  the  consideration  of  his  employment  that  he  shall  be  transported  from 
place  to  place  by  the  Company.  It  is  evident  that  he  couldn't  walk. 

App.  Note  4-     (§  70.)     Implied  Contract  with  a  Condition  Precedent. 

A  passenger  entered  a  railroad  car  without  a  ticket  and  was  later  ap- 
proached by  the  conductor  and  asked  for  it.  This  may  be  considered  to  be  an 
offer  to  contract  made  by  the  agent  of  the  railroad  company,  but  as  no  express 
language  was  used  to  that  effect,  the  contract  must  be  an  implied  one.  This 
implied  contract  is  to  the  effect  that  if  the  fare  is  paid  then  the  company  will 
carry  the  passenger,  and  forthwith  assume  the  liabilities  of  a  carrier  of  per- 
sons. But  the  payment  of  fare  is  a  condition  precedent  to  the  company's 
entering  into  the  contract  of  carriage.  If  the  payment  is  refused  then  there 
is  no  contract  even  if  the  passenger  subsequently  offers  the  money,  since  the 
company  is  not  bound  to  accept  performance  after  breach  of  the  condition 
precedent  by  the  passenger.  This  is  because  the  offer  made  by  the  conductor 
was  refused ;  hence  there  was  then  no  outstanding  offer  to  contract. 

This  case  arose  because  a  person  who  refused  to  pay  fare  was  put  off  the 
train  with  some  force  (after  it  had  been  stopped  for  that  purpose),  and  this,  he 
claimed,  was  a  breach  of  his  contract  of  carriage.  The  reasoning  given  above 
was  that  of  the  highest  court  of  Massachusetts,  and  shows  clearly  why  there 
never  was  a  contract  of  carriage  made,  and  why,  therefore,  there  was  no  breach 
of  it  by  the  Company.  (16  Gray  20.) 

App.  Note  4A.     (§  72.)     Implied  Condition  Precedent. 

Where   a  building-superintendent   or  engineer  is  to   certify   upon   the 

300 


APPENDIX    NOTES  Note  5 

quality  of  the  work  before  it  is  to  be  paid  for,  yet  the  contractor  may  recover 
for  work  done  by  showing: 

(1)  That  the  certificate  is  withheld  through  fraud  or  bad  faith  on  the  part 
of  the  engineer;  or 

(2)  Through  collusion  between  defendant  and  engineer;  or 

(3)  Through  a  manifest  mistake  made  by  the  engineer.     (138  U.  S.  183, 
51  N.  J.  Law,  1,  etc.) 

This  well  illustrates  a  condition  within  a  condition,  the  first  of  which  may 
be  either  express  or  implied  (generally  express),  and  the  second  one  is  a  con- 
dition "  implied  in  fact,"  since  it  is  a  necessary  implication  from  the  express 
one.  Even  the  second  condition  must  be  absolutely  performed.  (6  Gray 
402.) 

Pursuing  this  point,  the  student  should  notice  that  granting  the  certificate 
of  quality  by  the  engineer  is  usually  an  express  condition  precedent  to  the  con- 
tractor's receiving  pay.  To  this,  by  the  terms  of  the  contract,  the  parties 
fairly  agree ;  but  the  contractor  cannot  be  supposed  to  agree  that  he  will  allow 
the  engineer  to  cheat  and  defraud  him  at  his  pleasure,  nor  that  he  agrees  to 
accept  without  question  any  statement  made  by  the  engineer,  which  is  founded 
•upon  a  manifest  mistake,  and  known  to  be  so  by  the  contractor.  Therefore, 
these  are  necessary  implications  on  the  express  terms  used,  and  their  importance 
should  not  be  underestimated. 

App.  Note  5.    (§  73.)     Time  Element  as  a  Condition  Precedent. 

Where  the  circumstances  are  such  that  for  some  reason  the  time  element 
in  a  contract  is  of  extreme  importance,  the  parties  may  by  appropriate  lan- 
guage make"  time  of  the  essence,"  meaning  that  noncompliance  with  the  time 
provisions  is  a  substantial  breach  and  discharges  the  contract,  if  the  party  in- 
jured so  elects.  Failing  a  complete  discharge,  still  the  injured  party  is  en- 
titled to  damages  if  the  contractor  (without  fault  of  the  owner),  fails  to  com- 
plete the  work  on  time.  And  when  a  contract  requires  completion  at  a  specified 
time,  the  question  of  the  contractor's  negligence  or  diligence  is  not  considered ; 
nor  do  strikes,  lockouts,  accidents,  delays  in  carriage,  etc.,  relieve  him  unless 
there  is  a  particular  provision  to  that  effect.  The  point  is  that  the  contractor 
agrees  absolutely  to  complete  at  the  time  named.  He  should  have  contracted 
in  contemplation  of  the  contingencies  that  might  arise ;  failing  to  do  this  he  is 
bound  by  the  terms  assented  to,  as  already  alluded  to  under  "  Impossibility  of 
Performance."  Probably  if  the  work  is  destroyed  by  "  Act  of  God,"  per- 
formance on  time  would  be  excused. 

The  converse  of  the  above  proposition  deals  with  failure  to  complete  on 
time  by  reason  of  the  wrongful  acts  (or  neglect  to  act)  on  the  owner's  part. 
Thus  it  is  obvious  that  an  owner  cannot  forbid  a  contractor  to  proceed,  and 
then  sue  him  because  he  did  not  proceed  and  finish  on  time.  The  contractor 
should  also  be  excused  from  the  time-limit  if  the  owner  was  so  occupying  the 
site  as  to  prevent  him  from  setting  up  his  plant  thereon  at  the  agreed  time. 
Other  instances  might  be  where  the  owner  had  failed  to  obtain  a  building  per- 
mit, to  furnish  lines  and  grades  when  same  were  called  for  by  the  contract, 
etc.,  etc.  All  of  these,  it  will  be  seen,  are  true  conditions  precedent  to  the 
owner's  right  to  sue  for  breach  by  non-completion  on  time.  The  same  remarks 

301 


Note  6  APPENDIX    NOTES 

?,pply  where  the  engineer,  as  the  owner's  agent,  makes  mistakes  requiring  the 
work  to  be  done  a  second  time,  or  fails  to  give  the  lines  at  proper  times,  etc.,  etc. 

App.   Note  6.    (§  80.)     Statutory  Regulations  Encountered  in  Performance. 

It  is  not  uncommon  to  place  upon  the  contractor  the  burden  of  keeping 
fully  informed  upon  existing  State,  municipal,  or  national  laws  and  ordinances 
in  effect  or  made  during  the  continuance  of  the  work,  and  affecting  the  men  or 
materials  employed.  (See  clause  in  Charles  River  Dam  Example.)  Since  it 
may  happen  that  these  requirements  are  very  divergent  and  even  contra- 
dictory in  different  places,  often  the  local  interpretation  of  purely  local  or- 
dinances is  extremely  difficult  to  be  come  at.  Hence  there  may  be  great  hard- 
ship to  the  contractor  when  the  specification  writer,  by  a  blanket  clause,  avoids 
the  personal  responsibility  of  writing  the  specification  in  accordance  with 
existing  laws  or  ordinances  such  as  building  and  other  regulations  relating  to 
the  preservation  of  the  public  health  and  safety,  and  thus  puts  the  onus  of  his 
negligence  or  his  ignorance  where  it  does  not  justly  belong. 

Mr.  Bamford  (Proc.  Am.  Soc.  C.  E.,  XXXV,  1330),  cites  with  commenda- 
tion the  English  scheme,  noteworthy  for  its  fairness:  If  the  local  authorities 
require  the  work  to  be  done  in  a  different  manner  from  that  called  for  in  the 
specifications,  and  that  work  requires  additional  expense,  it  is  only  fair  that 
the  owner  and  not  the  contractor  shall  pay  the  same.  Mr.  Bamford  (copying 
from  the  English  standard  form)  suggests  this  language,  in  part:  "  Before 
making  any  variations  *  *  that  may  be  necessary  to  so  conform,  the  con- 
tractor shall  give  the  engineer  written  notice,  specifying  the  variation  proposed 
to  be  made,  and  the  reason  for  making  it,  and  apply  for  instructions  therein. 
If  instructions  are  not  given,  he  shall  proceed  in  conformity  with  the  ordinance 
or  regulation,  and  the  question  of  extras  shall  be  determined  under  the  general 
clause  for  arbitration  of  all  differences."  "  All  contract  requirements  over, 
above,  and  beyond  said  ordinances  shall  be  fully  complied  with." 

App.  Note  7.     (§  123.)     Breach  by  Abandonment. 

If  a  contractor  without  just  cause  abandons  the  work  before  completion, 
he  cannot  recover  anything  for  what  he  may  have  done  up  to  that  time ;  and 
even  if  the  owner  uses  the  incomplete  work  for  his  own  benefit  it  is  not  cer- 
tain that  he  will  have  to  pay  anything  for  it,  since  as  it  is  located  on  his  prem- 
ises, if  he  does  not  use  it  he  may  thus  be  deprived  of  the  use  of  his  own  land, 
and  he  should  not  be  obliged  to  tear  down  and  remove  the  new  work,  nor  yet 
abandon  his  own  land.  (171  Pa.  46.)  (See  Substantial  Performance.) 

This  application  of  principles  may  seem  harsh,  but  it  results  from  reason 
and  logic.  As  the  right  of  compensation  would  arise  only  when  performance 
was  complete,  the  contractor  has  merely  delivered  materials  upon  the  land 
of  another  without  entitling  himself  to  be  paid  therefor,  and  the  owner  suffers 
the  same  to  remain  there,  but  should  not  be  obliged  to  go  to  the  expense  of 
removing  them.  A  corollary  to  this  would  be  that  the  contractor  should  have 
the  right  to  remove  the  materials  again. 

But  in  this  connection,  it  should  be  observed  that  if  the  breach  is  made  by 
the  owner,  and  the  contractor  is  thereby  prevented  from  performing  (either  be- 
cause the  owner  refuses  to  allow  him  to  do  so,  or  because  the  owner  omits  to 
perform  some  highly  essential  part,  —  perhaps  a  prerequisite)  then  the  con- 

302 


APPENDIX   NOTES  Kote  9 

tractor  may  recover  for  the  value  of  the  work  he  has  done,  and  also  his  damages 
sustained  by  reason  of  the  owner's  breach.  The  natural  measure  of  damages 
would  be  the  profit  the  contractor  would  have  made  on  the  job. 

App.  Note  8.     (§131.)     Indirect  Damages. 

The  principles  of  damages*  apply  equally  well  whether  the  action  for 
damages  arises  by  reason  of  a  breach  of  contract,  or  by  reason  of  a  tort  suffered 
by  the  plaintiff.  It  should  be  noted,  however,  that  there  is  a  modification  to 
the  broad  rule  given,  and  that  under  certain  circumstances,  an  action  "  on 
the  case,"  as  lawyers  term  it,  may  be  successfully  had  where  the  damages  are 
indirect.  It  seems  this  remedy  can  but  rarely  be  availed  of,  however,  be- 
cause of  the  difficulty  in  determining,  as  a  practical  matter,  just  what  the 
damages  have  been. 

This  is  a  point  of  some  interest  to  engineers,  since  the  legislation  in  New 
York  pertaining  to  the  acquisition  of  an  additional  water-supply,  and  also  that 
in  Massachusetts  creating  the  Metropolitan  Water  Board,  has  dealt  somewhat 
with  this  matter,  and  recognized  that  there  are  cases  where  indirect  damages 
should  be  allowed. 

In  Vol.  51  of  Eng.  Record  No.  20,  there  is  an  editorial  in  which  it  is 
pointed  out  that  where  (for  example)  a  manufacturing  plant  must  be  moved 
because  of  the  occupation  of  its  site  by  a  new  reservoir,  this  question  of  in- 
direct damages  might  fairly  arise.  The  manufacturer  would  naturally  claim 
that  it  was  a  disadvantage  to  him  to  be  moved,  and  for  the  moving  he  would 
undoubtedly  be  made  whole.  Then  he  would  claim  that  there  was  a  further 
indirect  damage  to  him  by  reason  of  his  being  obliged  to  do  business  at  the 
new  place.  A  jury  might  find,  however,  that  it  was  in  fact  more  advantageous 
to  him  to  have  to  do  business  at  the  new  place  instead  of  at  the  old  location. 
If  the  equitable  maxim  "  He  who  seeks  equity  must  do  equity,"  were  now  to 
be  applied,  should  not  the  manufacturer  be  obliged  to  pay  for  the  benefit 
which  he  has  received  ?  There  is  now  no  evidence  perhaps  that  this  last  step 
has  or  will  be  taken,  but  the  argument  serves  to  show  the  difficulty  of  proving 
the  amount  of  indirect  damages,  and  it  is  said  that  in  suits  brought  under  cir- 
cumstances of  this  sort  the  awards  made  on  claims  for  indirect  damages  have 
been  disappointingly  small,  for  the  reasons  just  given. 

App.  Note  9.     (§131.)     LIQUIDATED  DAMAGES. 

It  has  been  previously  hinted  that  contract  provisions  bearing  upon 
liquidated  damages  would  need  careful  scrutiny  because  they  impinge  upon 
that  important  contract  essential,  viz. :  An  enforceable  contract  must  not  be 
contrary  to  public  policy. 

The  element  of  public  policy  here  raised  is  to  the  effect  that  every  one 
has  a  personal  right  to  have  his  grievances  heard  in  a  court  of  justice.  The 
constitutional  and  historical  background  of  this  proposition  cannot  be  entered 
upon  here.  Suffice  it  to  say  that  it  has  been  regarded  as  a  fundamental 
maxim  of  Anglo-Saxon  jurisprudence  since  the  day  of  Magna  Charta.  There- 
fore with  a  view  to  extending  the  protecting  mantle  of  the  law  over  those  not 
wholly  competent  to  safeguard  their  own  interests,  the  courts  have  always 
refused  to  enforce  certain  kinds  of  agreements,  on  the  ground  that  a  person 

*See§§  130,157. 

303 


10  APPENDIX   NOTES 

could  not  contract  away  his  legal  right  to  be  heard  in  court.  It  will  not  be 
unjust  to  say,  therefore,  that  contract  provisions  as  to  liquidated  damages 
are  regarded  as  falling  within  this  class,  and  are  contemplated  by  the  courts 
with  something  akin  to  professional  bias  or  prejudice. 

There  is  a  great  difference,  however,  between  the  power  of  the  parties 
to  bind  themselves  to  pay  bonuses  for  completion  ahead  of  time,  and  the  con- 
trary proposition,  to  enforce  the  payment  of  large  sums  as  penalties  for  failing 
to  complete  at  such  specified  time.  As  previously  shown  under  "  Considera- 
tion," stipulations  as  to  bonuses  for  early  completion  will  not  be  inquired  into, 
since  it  is  no  concern  of  the  Court  to  find  out  whether  or  not  it  was  really  worth 
the  bonus  to  have  the  thing  done  so  early ;  the  parties  themselves  are  the  best 
judges  as  to  that.  But  the  tendency  to  oust  their  jurisdiction  involved  in 
avowed  penalties  is  a  matter  the  courts  have  consistently  frowned  upon. 

Even  where  such  penalties  are  expressly  stipulated  for,  and  every  effort 
is  made  by  the  parties  to  have  them  construed  as  essential  parts  of  the  contract, 
yet  under  such  an  agreement  the  injured  party  can  recover  only  the  actual 
damages  received  by  himself.  As  already  noted,  about  the  only  situations 
where  liquidated  damages  expressed  in  the  contract  will  be  allowed  is  where 
for  special  reasons  it  is  practically  impossible  for  the  Court,  or  a  jury,  to 
ascertain  the  actual  damages.  It  may  well  be  expected,  therefore,  that  the 
courts  will  disregard  the  actual  language  used,  and  will  inquire  as  to  the  spirit 
underlying  it.  But  irrespective  of  the  language,  it  will  often  be  very  difficult 
for  the  Court  to  decide  whether  in  a  given  case  liquidated  damages  are  called 
for  which  can  be  allowed,  or  whether  there  is  a  penalty  demanded  which 
can  not  be  allowed. 

CONTRA.  —  There  is  another  situation,  however,  in  which  liquidated 
damages  figure,  and  which  the  student  and  the  engineer 
should  clearly  discern.  Suppose  that  the  contract  makes  no  mention  of 
penalties  or  damages,  liquidated  or  otherwise,  and  breach  of  some  sort  or 
abandonment  has  occurred.  It  is  a  well  settled  policy  that  "  The  law  favors 
compromises,"  —  hence  if  now  the  parties  get  together  and  liquidate,  i.e. 
ascertain  and  agree  upon  their  damages,  such  an  agreement  can  be  enforced. 
It  will  be  observed  that  in  effect  here  is  a  new  contract  which  either  in  terms 
or  by  implication  abrogates  and  discharges  the  original  contract.  And  as 
the  second  contract  is  of  a  sort  which  the  spirit  of  the  law  plainly  favors,  the 
suspicion  of  "  ousting  the  Court's  jurisdiction  "  is  entirely  removed. 

App.  Note  10.     (§  168.)     Electrolysis. 

The  view  of  the  courts  upon  electrolysis  may  be  seen  in  Eng.  News 
January  3,  1901,  where  a  Gas  Company  is  suing  a  Street  Railway  Com- 
pany for  electrolytic  damage  to  its  mains.  The  Court  says:  "  The  defendant 
can,  by  the  use  of  approved  appliances  at  a  reasonable  expense,  so  operate  its 
cars  as  to  avoid  injuring  the  plaintiff's  pipes.  But  the  plaintiff  cannot  by 
any  known  method  protect  its  pipes  from  injury." 

"  The  plaintiff  owns  its  pipe  line  laid  in  the  street  by  legal  authority. 
The  Street  Railway  Company  seizes  upon  this  property  and  makes  use  of  the 
pipes  as  a  conductor  for  its  return  current,  and  in  so  doing  greatly  injures  and 
in  some  instances  wholly  destroys  them,  and  this  is  done  under  a  claim  that 

304 


APPENDIX    NOTES  Note  12 

it  is  performing  a  public  service  under  authority  of  law.  Is  not  this  a  taking 
of  private  property  for  public  use,  and  for  which  just  compensation  must  be 
made?  *  *  *  *" 

"  The  city  could  not  and  did  not  grant  a  monopoly  of  the  street  to  the 
defendant,  and  when  the  tracks,  poles  and  wires  were  placed  in  the  street  the 
Railway  Company  knew  that  gas  and  water  pipes  might  be  laid  in  the  street 
at  any  time,  and  it  acquired  its  rights  to  run  an  electric  road  subject  to  that 
fact  and  all  the  consequences  that  might  follow.  The  plaintiff  is  not  a  tres- 
passer, but  occupies  the  street  lawfully,  and  while  there  its  property  is  taken 
by  the  Railway  Company  as  a  consequence  of  its  operations.  42  Fed.  Rep. 
279." 

"  Where  a  person  is  making  a  lawful  use  of  his  own  property,  or  of  a 
public  franchise  in  such  a  manner  as  to  occasion  injury  to  another,  the  question 
of  his  liability  will  depend  upon  whether  he  has  made  use  of  the  means  which, 
in  the  progress  of  science  and  improvement,  have  been  shown  to  be  best." 

"  A  street  railway  company  is  not,  however,  bound  to  adopt  the  latest 
invention,  nor  to  adopt  any  before  its  utility  and  practicability  have  been 
demonstrated  by  use.  But  *  *  *  when  at  reasonable  expense,  by  the 
adoption  of  well  known  and  approved  appliances,  the  injury  could  be  avoided, 
and  the  person  injured  is  powerless  to  guard  against  or  prevent  such  injury, 
then  it  must  be  held  to  be  negligence  in  the  use  of  its  franchise  on  the  part  of 
such  corporation  not  to  adopt  such  appliances."  (See  also  App.  Note  1.) 

App.  Note  11.     (§  190.)     Appropriation  of  Municipal  Water  Supply. 

The  Supreme  Court  of  Georgia  (49  S.  E.  Rep.  779)  has  settled  for  that  juris- 
diction, at  least,  the  following:  First,  a  municipality  that  buys  a  piece  of 
land  upon  a  non-navigable  stream  several  miles  distant  from  its  corporate 
limits  does  not  thereby  become  a  riparian  owner  sufficiently  to  become  en- 
titled to  take  water  therefrom  for  its  city  water  supply.  Second,  that  the 
right  of  a  bona  fide  riparian  owner  to  have  the  water  come  to  him  in  its  usual 
and  natural  flow  and  condition  is  a  right  inseparably  connected  with  his  land, 
and  to  deprive  him  of  it  without  due  process  of  law  is  confiscation.  Third, 
equity  will  enjoin  such  a  taking  by  the  municipality  in  derogation  of  the 
riparian  owner's  right,  even  though  he  may  not  be  at  once  seriously  injured 
hy  it. 

App.  Note  12.     (§  210.)     Lateral  Support  and  Negligence. 

Since  the  owner  of  land  has  the  absolute  right  to  have  his  land  remain  in 
its  natural  condition,  if  his  neighbor  digs  so  as  to  injure  this  right,  the  first 
has  an  action  against  the  second  without  proof  of  negligence.  But  the  dam- 
ages are  limited  to  injury  to  land,  and  do  not  include  any  injury  to  buildings 
or  improvements.  This  is  because  no  one  can  enlarge  his  neighbor's  liability 
by  reason  of  an  interference  with  this  right.  If  a  man  is  not  content  to 
enjoy  his  land  in  its  natural  condition  but  wishes  to  build  upon  it,  he  must 
either  make  an  agreement  with  his  neighbor,  or  else  carry  his  foundations  so 
deep  or  take  such  other  precautions  as  to  insure  the  stability  of  his  buildings 
or  improvements  whatever  excavations  his  neighbor  may  afterwards  make 
in  the  exercise  of  his  own  right.  *  *  *  No  easement  of  lateral  support  can  be 
acquired  because  the  next  owner  (of  the  servient  [?]  estate),  cannot  see,  use, 

305 


Note  13  APPENDIX    NOTES 

or  know  of  that  use  and  support;  hence  he  cannot  acquiesce  in  it,  and  hence 
there  can  be  no  prescription.     (122  Mass.  199.) 

App.  Note  13.     (§  268.)     Construing  Partnership  Articles. 

The  partnership  relation  is  one  of  contract,  primarily,  and  the  partners 
may  by  agreement  define  their  various  rights,  relations,  and  interests  in  the 
partnership.  If  they  fail  to  make  specific  provision  for  any  case  that  maj 
arise,  the  following  rules  of  construction  will  apply. 

(1)  All  partners  are  entitled  to  share  equally  in  the  capital  and  profits, 
and  they  must  contribute  equally  to  meet  the  losses. 

(2)  The  firm  must  reimburse  every  partner  for  payments  made  out  of  his 
own  personal  property,  for  matters  in  the  ordinary  and  proper  conduct  of  the 
business,  or  in  reference  to  matters  done  and  necessary  for  the  preservation  of 
the  property  or  interests  of  the  firm. 

(3)  Every  partner  may  take  part  in  the  management  of  the  partnership 
business. 

(4)  No  partner  is  entitled  to  remuneration  for  acting  in  the  partnership 
business.     His  compensation  lies  in  being  entitled  to  a  share  in  the  profits 
when  they  shall  have  been  ascertained. 

(5)  No  new  person  shall  be  introduced  into  the  firm  without  consent  of 
the  rest  of  the  partners. 

(6)  Partners  are  bound  to  render  true  accounts  and  full  information 
upon  all  things  affecting  the  partnership  business  to  any  other  partner,  or  to 
his  legal  representatives,  as  his  executor,  or  administrator. 

App.  Note  14.    (§274.)     Final  Accounting. 

Solvent  partners  may  voluntarily  close  up  their  business,  settle  their 
accounts,  and  divide  their  surplus.  Where  the  firm  is  insolvent  or  the  partners 
cannot  agree,  or  conflicting  claims  arise,  the  intervention  of  a  court  of  equity 
will  be  necessary.  The  method  of  accounting  may  be  outlined  as  follows: 

(1)  Ascertain  how  the  firm  stands  toward  all  outsiders. 

(2)  Ascertain  the  extent  of  the  obligation  as  between  each  partner  and 
the  firm,  including  (a)  what  each  has  contributed,  either  as  capital  or  advances; 
(6)  what  each  should  have  brought  in,  but  has  not;  (c)  what  each  has  taken  out 
more  than  the  others. 

(3)  Apportion  the  profits  to  be  divided,  or  the  losses  to  be  made  up,  and 
ascertain  what  each  has  to  pay  to  the  others  so  as  to  settle  cross-claims. 

When  the  accounting  is  complete,  the  assets  are  distributed  in  the  following 
order: 

First:  In  paying  the  debts  due  from  the  firm  to  third  persons. 

Second:   In  repaying  to  each  partner  his  advances. 

Third:   In  repaying  to  each  partner  his  capital. 

Fourth:  The  balance  will  be  distributed  equally  as  profits,  unless  there  is 
an  agreement  that  the  proportions  shall  be  different.  (Lindley  on  Partner- 
ship, 402.) 

App.  Note  15.     SURETYSHIP. 

There  is  a  distinct  body  of  contract  law  relating  to  Suretyship,  as  there  is 
in  Sales,  Partnership,  etc.  It  is  the  present  purpose  to  outline  a  few  of  its 
salient  principles. 

306 


APPENDIX    NOTES  Note   15 

Suretyship  Defined :  "  Suretyship  is  the  obligation  of  one  party  to  answer 
for  the  debt,  default,  or  miscarriage  of  another."  (Bouvier's  Law  Diet.)  To 
constitute  the  status  of  suretyship,  three  essential  elements  must  be  found: 

(a)  There  must  be  three  parties,  a  creditor,  a  principal  debtor,  and  a 
surety. 

(6)  There  must  be  two  obligations  running  to  the  creditor's  benefit,  —  one 
from  the  principal  debtor,  and  one  from  the  surety. 

(c)  As  between  the  principal  debtor  and  surety,  the  former  must  be  the 
person  ultimately  liable. 

In  contradistinction  to  suretyship  is  a  contract  for  indemnity,  where 
the  obligation  is  given  by  X  to  protect  the  indemnitee  (S)  against  his  liability 
to  another  (C,  the  creditor),  whereas  by  suretyship  S  guarantees  the  discharge 
of  X's  liability  to  C.  Indemnity  is  well  illustrated  by  ordinary  casualty 
insurance,  where,  for  instance,  an  employer  is  insured  against  liability  to  his 
employees  for  personal  injury,  etc. 

Alteration  of  Contract,  or  Changes  Affecting  the  Risk.  —  As  already  tre^ed 
at  some  length  (see  §  32)  alterations  in  the  contract  may  materially  moaify 
the  surety's  relation  to  the  whole  transaction.  There  are,  therefore,  two  cases 
presented:  (a)  Where  the  original  agreement  between  the  principal  and 
creditor  has  been  altered,  either  physically  on  the  face  of  the  written  instru- 
ment, or  they  have  by  a  collateral  contract  either  rescinded  or  modified  all  or 
a  part  of  the  original  agreement.  When  these  acts  have  taken  place  without 
the  surety's  consent  or  ratification,  he  plainly  cannot  be  held  in  a  suit  upon  the 
altered  contract,  since  his  rational_defence  is  that  he  never  made  such  a  contract. 

(b)  Where   though   the   original   contract  remains   unchanged,   its  per- 
formance as  between  the  creditor  and  the  principal  debtor  is  not  in  precise 
accordance  with  its  terms;  or  where  the  principal  and  creditor  have,  in  the 
course  of  performance  brought  about  a  condition  of  affairs  not  fairly  to  have 
been  'expected  by  the  surety.     Here,  the  principal  question  is  held  to  be 
whether  the  surety's  risk  has  been  unfairly  increased  by  actions  of  the  prin- 
cipal and  debtor  outside  the  contract.     If  this  condition  is  found,  the  resulting 
situation  is  that  of  a  case  where  an  attempt  has  been  made  to  bind  a  third 
person.     (See  §  31.)     In  such  a  case  (131  Mass.  77)  the  Court  said:  "  If  such 
change  amounts  to  a  substitution  of  a  new  agreement  for  the  old,  so  as  to  dis- 
charge and  put  an  end  to  the  latter,  the  surety  is  discharged.     But  if  the 
change  is  from  its  very  nature  beneficial  to  the  surety,  or  it  is  self-evident  that 
it  cannot  prejudice  him,  the  surety  is  not  discharged."     The  weight  of  au- 
thority is  against  this  view  however. 

Relation  to  Specifications.  —  In  cases  on  building  contracts  where  changes 
are  made  during  progress  of  the  work,  the  question  of  whether  the  surety  was 
released  or  not  has  frequently  been  held  to  depend  upon  the  proper  interpre- 
tation of  the  surety's  contract.  If  such  interpretation  properly  makes  the 
specifications  a  part  of  his  contract,  then  of  course  alteration  of  them  effects 
his  release;  otherwise  not,  unless  there  are  special  circumstances  which  vary 
the  risk  and  raise  an  equity  in  his  favor.  (186  U.  S.  309,  and  8  Wall.  13.) 

Fraud,  Misrepresentation,  etc.  —  We  have  previously  seen  the  fatal  effects 
of  fraud  upon  contracts  generally.  Its  importance  in  contracts  of  surety  is 
no  less.  The  general  trend  of  the  cases  is  that  if  the  creditor  and  debtor  deal 

307 


Note   17  APPENDIX    NOTES 

in  any  way  unfairly,  with  a  resulting  increased  burden  upon  surety,  he  will  be 
discharged.  Equally  pertinent  is  the  rule  that  if  any  unfair  dealing  is  prac- 
ticed directly  upon  the  surety  by  the  creditor,  the  contract  of  surety  is  in- 
effectual. A  distinction  is  made,  however,  between  cases  where  the  creditor 
actually  misrepresents  facts,  and  those  where  he  says  certain  things  will  come 
to  pass.  For  if  such  statements  are  merely  of  his  expectation,  failure  to  make 
them  good  will  not  discharge  the  surety.  But  if  on  the  other  hand  they  are 
essentially  promises,  a  breach  of  them  will  work  the  surety's  discharge  on  the 
ground  of  failure  of  consideration,  or  breach  of  an  implied  or  express  con- 
dition precedent. 

Indemnity.  —  The  student  should  note  carefully  that  with  reference  to 
engineering  contracts,  the  whole  matter  of  suretyship  does  not  in  any  way 
decrease  the  responsibilities  and  burdens  of  the  contractor.  It  is  merely  a  de- 
vice for  strengthening  the  contractor's  credit  for  the  benefit  of  the  owner,  or 
the  contractor's  employer. 

In  fact  it  is  common  for  the  contractor  to  enter  into  an  express  contract 
of  indemnity  with  his  surety,  that  in  the  event  of  the  surety's  having  to  pay, 
the  contractor  will  later  make  him  whole.  But  in  the  absence  of  such  a  con- 
tract, nevertheless  the  surety  can  hold  the  contractor  upon  an  implied  con- 
tract of  indemnity,  if  the  surety  has  to  pay  the  whole  or  any  part  of  the  con- 
tractor's debt,  or  default,  etc. 

From  the  foregoing  principles,  important  rules  of  the  law  of  suretyship 
spring.  Thus,  if  a  surety  pays,  he  succeeds  to  the  rights  of  the  creditor  whom 
he  has  discharged,  and  may  prosecute  the  original  obligation  against  the 
debtor  in  the  creditor's  name.  This  is  called  the  right  of  subrogation.  If  the 
debtor  has  been  obliged  to  hypothecate  other  securities  by  putting  them  into 
the  hands  of  the  creditor,  the  surety,  upon  paying,  succeeds  to  the  possession 
of  such  securities,  and  holds  them  in  his  own  behalf.  Again,  if  the  debtor 
has  assets  which  he  refuses  to  apply  to  his  debt,  the  surety  can,  in  a  proper 
case,  come  into  a  court  of  equity  and  compel  his  principal  to  pay  the  debt 
before  the  creditor  collects  from  the  surety.  If  successful  in  this,  of  course  the 
surety  is  exonerated  from  payment  of  the  debt. 

Discharge  of  Surety.  —  In  general  it  may  be  said  that  if  the  debtor  is  dis- 
charged otherwise  than  by  an  act  of  the  creditor  (as  bankruptcy,  death,  etc.), 
the  surety  is  not  discharged.  But  any  act  of  the  creditor  which  results  in  the 
complete  or  partial  discharge  of  the  debtor  results  in  discharging  the  surety 
to  the  same  extent. 

App.   Note  17.     (§  397)     Objects  of  Specifications. 

Mr.  J.  H.  Bacon,  in  a  paper  before  the  American  Society  of  Engineering 
Contractors,  January  10,  1910,  discussing  the  purpose  in  specification  writing, 
observes  that  there  are  two  main  objects  common  to  all  specifications:  (1) 
To  define  the  work  to  be  done  so  that  any  competent  contractor  may  sub- 
mit an  intelligent  bid.  (2)  To  establish  a  guide  and  a  standard  by  which  the 
contract  may  be  interpreted  with  fairness  to  each  party. 

To  obtain  the  second  result  three  cardinal  principles  should  be  observed: 

(a)  The  schedule  of  prices  should  include  every  item  that  can  possibly  be 

foreseen  with  a  view  to  reducing  "force  account"  work  and  "extra  items"  to 

308 


APPENDIX    NOTES  Note  18 

a  minimum.  This  will  prevent  either  party  from  claiming  or  denying  without 
justification  that  any  piece  of  work  is  covered  by  the  specification. 

(6)  Every  .item  in  the  schedule  of  prices  should  be  adequately  covered  by 
a  corresponding  clause  or  section  in  the  specifications. 

(c)  The  specifications  should  be  so  worded  as  to  reduce  to  a  minimum  the 
possibility  of  difference  of  opinion  as  to  which  clause  of  the  specifications  will 
cover  any  given  item  in  the  schedule  of  prices. 

With  these  principles  in  view,  the  expression,  "In  the  opinion  of  the 
engineer,"  or  its  equivalent,  should  be  excluded  as  far  as  possible.  The  price 
to  be  paid  should  be  connected  with  the  work  to  be  done  by  concise  and  clear 
language.  The  contractor  should  have  no  excuse  for  insuring  himself  against 
loss  by  bidding  higher  prices  than  the  actual  work  justifies. 

Difficulty  of  the  Task.  —  It  is  demonstrable  that  specification  writing  is 
worthy  to  rank  high  among  other  more  showy,  but  scarcely  more  interesting 
professional  work.  Indeed  it  requires  for  its  satisfactory  accomplishment  a 
high  degree  of  technical  knowledge,  more  than  a  smattering  of  legal  informa- 
tion, and  a  sound  commercial  training.  If  in  addition,  the  writer  is  possessed 
of  sound  common  sense,  allied  to  practical  experience  in  his  work,  he  will  be 
well  fitted  to  assist  in  dispelling  the  much  too  popular  fallacy  that  the  prep- 
aration of  engineering  specifications  is  a  necessary  but  uninteresting  piece 
of  drudgery,  carrying  with  it  no  reward  but  that  which  *  always  accompanies 
work  well  done.  (H.  L.  Butler,  in  Engineering-Contracting,  February  3,  1909.) 

App.   Note  18.     TRUE  ECONOMY  IN  GOOD  SPECIFICATIONS. 

In  Engineering  News,  September  18,  1902,  there  is  a  strong  editorial 
containing  pertinent  criticism  of  current  practice  in  specification  writing,  some 
of  which  is  well  worth  quoting.  A  valued  correspondent  with  long  experi- 
ence in  engineering  work  submitted  a  definition,  suggested  by  numerous 
specifications  in  current  use.  It  was:  "A  specification  is  an  instrument  or 
document  purposed  to  set  the  contractor  guessing  at  the  engineer's  meaning." 
And,  it  is  asked,  if  this  indictment  is  true,  why  do  engineers  write  such  speci- 
fications? 

The  reason,  it  is  urged,  is  easily  seen.  The  engineer  writes  his  specifi- 
cations to  fit,  —  not  the  honest  contractor  who  aims  to  do  good  work,  and 
has  a  reputation  to  that  effect,  but  to  fit  the  dishonest  and  crooked  con- 
tractor who  will  scamp  his  work  at  every  turn.  The  engineer  knows  that  he 
may  be  obliged  to  let  the  work  to  a  man  of  the  latter  class,  and  wishes  to 
secure  all  possible  hold  upon  him.  Therefore,  if  the  specification  leaves  the 
engineer  unlimited  discretion  as  to  accepting  the  work,  he  feels  that  he  can 
better  control  the  sharp  contractor  who  seeks  to  take  unfair  advantage  of 
every  loop-hole.  This  is  the  engineer's  view  of  the  case. 

Looking  from  the  honest  contractor's  standpoint,  it  is  evident  that  even 
with  the  most  complete  and  definite  specifications  he  must,  in  most  engineer- 
ing work,  take  a  large  amount  of  risk.  When  the  specifications  are  incom- 
plete and  indefinite,  and  the  engineer's  "  judgment"  is  a  prime  element,  the 
contractor  must  often  reckon  on  it  as  being  almost  the  largest  element  of 
risk  involved. 

If  we  candidly  consider  the  question,  "Is  it  not  a  mistake  to  place  any  un- 

309 


Note  19  APPENDIX   NOTES 

necessary  risk  upon  the  contractor?"  it  is  self-evident  that  every  such  added 
risk  means  that  a  bidder  who  is  financially  responsible  must  add  enough  to 
his  bid  to  cover  that  risk.  The  irresponsible  bidder  has  little  to  lose,  and  the 
result  is  that  too  often  he  submits  the  lowest  bid.  If  he  is  lucky  he  makes  a 
profit;  but  if  luck  goes  the  other  way  the  contract  will  probably  be  abandoned, 
and  there  will  be  the  expense  and  delay  attendant  upon  re-letting  the  work. 

Nor  is  this  the  sum  total  of  the  evils  attending  poor  specifications.  From 
time  immemorial  manipulation  of  the  specifications  has  been  a  favorite  scheme 
of  corruption  in  contract  work.  If  specifications,  the  most  severe  that  wit 
can  devise  are  made,  they  can  be  defended  as  necessary  requirements  of  the 
work.  But  the  contractor  "on  the  inside,"  is  aware  that  they  will  not  be 
enforced,  since  he  knows  what  his  competitors  do  not  know,  —  the  "personal 
equation"  of  the  engineer. 

Considering  all  these  matters,  is  it  not  fair  to  judge  a  specification  by  the 
extent  to  which  it  makes  definite  and  clear  the  work  to  be  done?  When  this 
result  is  accomplished,  the  contractor  can  estimate  with  certainty  what  finan- 
cial obligations  he  must  assume,  and  need  not  add  on  for  uncertainties  of 
meaning. 

This  editorial  analyzes  the  contractor's  status  in  the  specification  of  an 
important  United  States  Government  contract,  laying  especial  stress  on  a 
blanket  clause  covering  "Omissions  and  Misdescriptions."  It  points  out  the 
danger  lurking  in  clauses  pertaining  to  "Control  of  Work,"  and  "Progress  of 
Work"  is  commented  upon,  all  of  which  may  be  read  to  advantage  by  the 
student  or  engineer.  It  is  shown  that  "hair-splitting  requirements"  in 
specifications  are  factors  wherein  the  "personal  equation"  of  the  engineer 
enters  prominently  and  affects  the  price  which  the  contractor  must  bid.  More- 
over, many  of  these  exquisite  refinements  are  so  technical  or  highly  theoreti- 
cal as  to  be  impracticable  of  execution. 

If  important  points  in  the  work  are  necessarily  uncertain  and  subject  to 
numerous  variations,  it  is  sometimes  argued  that  "blanket  clauses"  are  the 
only  way  of  meeting  the  difficulties.  In  rebuttal  it  is  urged  that  the  only 
logical  way  of  dealing  with  such  situations  is  to  do  the  work  by  day-labor. 

App.  Note  19.    (§  400.)    "  Political  Contracts  "  and  "Trouble  Breeders." 

Editorial  writers  have  long  pointed  out  that  in  municipal  work  as  else- 
where, specifications  are  frequently  so  drawn  as  to  place  all  burden  of  doubt 
on  the  contractor.  This  necessarily  breeds  a  class  of  contractors  who'are  not 
primarily  business  men  so  much  as  they  are  gamblers,  or  they  may  be  purely 
politicians  who  rely  upon  their  "pull"  to  save  them  from  financial  loss  in  case 
the  conditions  prove  worse  than  anticipated. 

It  is  apparent  that  a  clear,  complete,  and  fair  specification,  if  universally 
used  on  municipal  contract  work,  would  soon  eliminate  such  gamblers  and 
politicians,  for  as  a  rule  they  do  not  have  the  business  ability  to  successfully 
compete  with  the  modern  contractor. 

Three  items,  known  as  breeders  of  trouble,  may  well  be  mentioned  here. 
It  is  said  that  the  great  majority  of  lawsuits  brought  by  contractors  arise  (1) 
over  excavation,  or  (2)  over  changes  in  construction  necessitated  by  the  dis- 
covery of  unexpected  conditions  when  the  excavation  was  made. 

310 


APPENDIX   NOTES  Note  21 

The  third  relates  to  the  power  or  authority  of  the  engineer  on  the  work. 
Recently  the  General  Contractors'  Association,  of  New  York  City,  has  asked 
that  in  all  future  contracts  for  city  work,  the  provision  that  the  decision  of 
the  Chief  Engineer  shall  be  final  and  binding  in  settlement  of  all  disputes, 
measurements  of  quantities,  and  interpretations  of  specifications,  be  strongly 
modified,  since  they  assert  (probably  with  reason),  that  such  provisions  have 
been  the  subject  of  endless  discussion,  friction  and  litigation. 

App.  Note  21.    Intention  of  Parties  as  to  Passing  Title. 

Since  in  many  sales  the  parties  fail  to  express  their  intention  as  to  when 
title  shall  pass,  or  express  it  too  vaguely  to  make  their  intentions  certain, 
rules  for  construing  their  intentions  from  their  acts  have  been  developed. 
Several  characteristic  situations  have  thus  been  provided  for. 

(1)  Sale  of  a  Specific  Chattel  Unconditionally.     Where  the  subject  of 
the  contract  is  agreed  upon,  and  the  article  is  ready  for  immediate  delivery, 
the  law  presumes  an  immediate  passing  of  title.    This  rule  is  never  questioned 
where  the  price  has  been  paid,  or  where  credit  is  expressly  given.    Some  juris- 
dictions hold  that  where  the  sale  is  for  cash,  payment  is  a  condition  precedent, 
but  others  follow  the  English  view  that  title  passes,  reserving  to  the  seller  his 
lien  for  the  price. 

(2)  Sale  of  a  Specific  Chattel  Conditionally.    If  by  agreement  something 
remains  to  be  done  by  the  seller  to  put  the  goods  into  deliverable  condition, 
title  will  not  pass  until  such  work  is  done.     Thus  the  testing  of  a  dynamo, 
or  water-wheel,  if  agreed  upon,  would  be  a  condition  precedent  to  the  passing 
of  title.    Probably  the  best  authority  holds  that  where  the  price  depends  upon 
the  quantity  or  quality  of  the  goods,  the  weighing,  measuring,  or  testing  of  the 
goods  are  conditions  precedent  to  the  passing  of  title. 

(3)  Sale  of  Goods  not  Specified.    Where  the  sale  is  of  goods  not  specified, 
but  covers,  for  example,  goods  to  be  manufactured  though  not  forming  a 
specific  lot,  title  does  not  pass  until  there  is  an  appropriation  of  them  to  the 
contract.     (See  §  313.)    If  the  goods  are  part  of  a  uniform  mass,  as  so  many 
tons  of  rails,  so  many  kegs  of  spikes,  etc.,  a  few  American  courts  hold  that 
no  appropriation  is  necessary  to  pass  title.    The  greater  weight  of  authority, 
however,  is  to  the  effect  that  appropriation  is  no  less  necessary  because  of 
the  above  facts.     (Grain  in  elevators  forms  a  recognized  exception  to  the 
rule.) 

(4)  A  subsequent  appropriation  may  complete  the  passage  of  title  where 
the  class  of  goods  is  agreed  upon,  though  the  particular  chattels  are  not 
specified, 

(5)  If  the  goods  are  to  be  manufactured  upon  the  order  of  the  buyer,  the 
title  does  not  pass  until   the  goods  are  finished  and  appropriated  to  the 
contract.   In  New  York  this  rule  has  been  held  to  still  apply  even  when  the 
entire  price  has  been  paid  in  advance,  or  where  the  buyer  superintends  the 
work. 

(6)  Reservation  of  the  jus  disponendi  (see  §  315)  is  a  highly  practical  sort 
of  construing  which  the  seller  puts  upon  the  question  of  passing  of  title.    By  it 
he  unequivocally  shows  that  he  does  not  intend  the  title  to  pass  until  the  pur- 
chase money  is  in  sight. 

311 


Note  22  APPENDIX  NOTES 

A  pp.  Note  22.    Advantages  in  Corporate  Form  of  Organization. 

The  advantages  of  transacting  business  as  a  corporation  over  undertaking 
it  individually  or  as  a  co-partnership,  may  be  briefly  stated  as  follows: 

(1)  There  is  immunity  from  individual  liability  for  debts  arising  out  of  the 
conduct  of  the  business.     (Compare  this  with  the  doctrines  of  partnership.) 

(2)  The  element  of  perpetuity  for  the  life  of  the  enterprise  is  secured,  so 
that  the  death  of  any  of  the  parties  interested  does  not  interfere  with  the  con- 
duct of  the  business. 

(3)  The  "good  mil"  and  prestige  of  the  business  is  not  then  the  property 
of  an  individual,  but  belongs  to  the  corporation. 

(4)  Capital  is  readily  obtained  through  the  sale  of  stock,  thus  doing  away 
with  the  necessity  of  admitting  general  or  special  partners  into  the  concern. 

(5)  The  sale  of  bonds,  or  of  preferred  stock  facilitates  the  raising  of  addi- 
tional funds. 

(6)  The  individual  interests  in  the  business  may  be  sold  or  transferred 
with  ease,  and  it  is  not  necessary  to  obtain  the  consent  of  any  third  party  to 
the  sale. 

(7)  The  danger  of  being  ruined  through  the  dishonesty  or  extravagance  of 
a  partner  is  removed. 

(8)  The  expense  connected  with  incorporating  an  enterprise  is  small. 

(9)  More  far-reaching  and  extensive  powers  are  usually  conferred  upon  a 
corporation  than  are  possessed  by  a  partnership  or  an  individual. 


312 


INDEX 


Figures  refer  to  Section  Numbers,  not  pages. 


Agency 


Agency  by  "Estoppel" 139 

bv  Implication 139 

Creation  of 134 

Defined 132 

Limits  on  Implied 139 

Proof  of 133 

Rests  on  Contract 133 

Agent,  Dealing  with 134 

Duties  of 147-8 

Engineer  as 135,  152 

"Holding  out" 139 

Instructions  to 149 

"Judicial  Acts  "of 138 

Notice  to 148 

Power  to  Appoint 132 

Tort  of 150(2) 

Agent's  Authority 135 

Misrepresenting 151 

Scope  of 135 

Summarized 146 

Agent's  Liabilities  to  Third  Per- 
sons   150 

Assignment  of  Contracts 145 

Attorney  in  Fact 134 

Choice  of  Parties  Bound 144 

Creation  of  Agenc}' 134 

Custom  and  Usage 146 

Delegation  of  Powers 136 

Duties  of  Agent 147-8 

Duty  in  Dealing  with  Agent. . . .  134 


Employment  of  Engineer 153 

Engineer  as  Agent 135,  152 

Employment  of 153 

Undertaking  of 153 

Essentials  to  Ratification 142 

"Holding  out" 139 

Implied  Authority 135,  146  (2) 

Ratification 140  (2) 

Incidental  Powers 146 

Instructions  to  Agent 149 

"Judicial  Acts"  of  Agent 138 

Limits  on  Implied  Agency 139 

Misrepresenting  Agent's  Author- 
ity       151 

Notice  to  Agent 148 

Power  of  Attorney 134 

Power  to  Appoint  Agent 132 

Proof  of  Agency 133 

Ratification    of    Agent's    Acts 

140, 146  (5) 

Scope  of  Agent's  Authority 135 

Secret  Instructions  to  Agent. . . .      149 
Summary  of  Agent's  Authority .      146 

Supervisory  Delegation 137 

Tort  of  Agent 150  (2) 

Undertaking  of  Engineer 153 

Undisclosed  Principal 143-4 

Unknown  Principal 142  (6) 

Warranties  of  Engineer 153 

Who  may  Ratify 141 


Contracts 


(Chapters 

Acceptance  of  Contract 63 

Accord  and  Satisfaction 108 

Additional  Plans,  etc 1 16 

Work... 114 

Adequate  Consideration 43 

Agreement  Enforced  as  Made.  .      123 

or  Mutual  Assent 51,  52 

Aim  in  Contract-Writing 84 

Alterations 109 

May  Release  Surety 32 

Approval  of  Work 73 

Argument  for  Definiteness.  ..  117, 118 

for  Study  of  Contracts 84 

Arbitration  upon  Extras 116 

"At Their  Peril" 25 

Basic  Position  of  Contracts.  ...       20 
Bidders,  Instructions  to 62-66 


II  and  III) 

Breach    in    Engineering    Con- 
tracts  124-128 

in  General 122, 123 

Cancellation     and     Abrogation 

Clauses 106 

Common  Law 21 

Words      Have     Technical 

Meaning 22 

Compensation,  Damages  as.  ...      130 

Competent  Parties 23  ( 1) 

Concurrent  Conditions 77 

Conditional  Contract 71 

Liability 73 

Offers 62 

Conditions  in  Measurements.  . .        73 

Precedent 73 

Subsequent 75,  76 


313 


INDEX 


Figures  refer  to  Section  Numbers,  not  pagos. 


Conditions — Con. 

Summarized 79 

to  Receiving  Payment 73 

Conduct  of  Parties 82 

Conflict  of  Laws 88-91 

in  Writing  and  Printing.  . .       83 

Consideration 36 

Adequate 43 

Failure  of 50 

Forbearance  as 36 

Impossible 44 

Kinds  of 42 

Mutual  Promises 40 

New 110,111 

Proof  of 48 

Construction,     Importance     of 

Rules 47 

of  Contracts 80 

Principal  Rule  of 81 

Contingent  Events 71 

Contract,  Acceptance  of 63 

Conditional 71 

Defined 17 

Elements  must  be  Found.  .        17 

Engineer  Enforces 92 

Essentials 18 

Implied 68-70 

Incompetency  in  Illegal.  . .        70 

Intention  to 69-72 

Offer  to 62 

of  Suretyship.  .  .  App.  15  and  3 

Parties  Bound  in 23 

Performance  of 94 

Place  of  Making 89-91 

Writing,  Aim  in 84 

Contractor  Refuses  to  Perform. 

Contracts,  Basic  Positions  of .  .  .       20 

Construction  of 80 

Contrary  to  Public  Policy. 

Discharge  of 93 

Divisible 101 

Engineering 124-128 

Express 60 

How  Made 61 

Implied  and  Quasi- 129 

in  Restraint  of  Trade 27 

Interpretation  of 80 

in  Violation  of  Statutes.  .  .       25 
Involving  Public  Policy . . . 
Opposed  to  Common  Law .       30 

Severable 101,102 

Supplemental 112,113 

to  Bind  Third  Parties  .....       31 

Covenants  Dominate  Specifica- 
tions        83 

Custom  and  Usage 85-87 

Damages  as  Compensation 130 

Indirect 130 


Damages — Con. 

in  General , 130 

Liquidated    and    Unliqui- 
dated   131 

or  Performance 96 

Remote 130 

Default  by  Contractor 76 

Dependent  Conditions 77,  78 

Discharge  by  Agreement 105,  106 

by  Alteration 112 

by  Payment 121 

by  Waiver 107 

of  Contracts 93 

Divisible  Contracts 10 1 

Duress 58 

"  Enabling  Statutes  " 23 

Engineer  Enforces  Contract 92 

Foresight  by 123 

Engineering  Contracts,  Extent 

of 82 

Engineer's  Power  as  to  Extras.  116 

Entry  by  Owner  to  Complete...  126 

Equity,  Origin  of 95 

Exoneration  from  Performance.  128 

Exorbitant  Price  for  Extras ....  115 

Express  Contracts 60 

and  Implied  Conditions...  72 

Extras 114-116 

Arbitration  upon 116 

Exorbitant  Price  for 115 

Fixed  by  Net  Cost 120 

Litigation  over 118 

Price  of 120 

Failure  of  Consideration 50 

to  Perform 122 

Fields  of  Law  Named 35 

Forbearance  as  Consideration.  .  36 

Foresight  by  Engineer 123 

Formality  in  Acceptance 64 

Fraud,  Elements  of 57 

Gratuitous  Promise 38, 39 

Implication  of  Illegal  Contract  70 

Implications  of  the  Language.  .  85 

Implied  Acceptance 64 

and  Quasi-Contracts 129 

Contract 68-70 

Importance   of  Rules   of   Con- 
struction   47 

of  Technical  Terms 22 

Impossible  Consideration 44 

Performance 45, 46, 98 

Incompetency    in    Illegal    Con. 

tract 70 

Inconsistent  Matters 81, 82 

Indirect  Damages 130 

Inferences  to  be  Taken 68 

Insane  Persons,  Contracts  of. .  .  23 

Intention  to  Contract, . , , 69-72 


314 


INDEX 


Figures  refer  to  Section  Numbers,  not  pages. 


Interpretation  of  Contracts ....  80 

Jurisdiction  of  Equity 96 

Kinds  of  Consideration 42 

Language  in  Conditions 74 

Law  and  Equity 95 

Lawful  Subject  Matter 24 

Varieties  of 35 

Legal  Counsel  Required 25 

Legal  Rules 21 

Legislative  Restrictions 25 

LexFori 91 

Lex  Loci  Contractus 89 

Lex  Loci  Rei  Sitae 90 

"Lien  and  Labor"  Laws 26 

Limitations  of  the  Language. .  .  68 

Litigation  over  Extras 1 18 

Lump  Sum  Plus  Cost 120 

Mailing  Acceptance 63 

"Meeting  of  the  Minds" 51-60 

Misrepresentation 56 

Mistake  as  to  Person 54 

to  Subject  Matter 55 

to  Transaction 53 

Defined 53 

Mutual  Conditions 77 

Demands  and  Compromises  41 

Promises 37 

Net  Cost,  Extras  Fixed  by 120 

New  Agreement  Annuls  Old 106 

New  Consideration 1 10, 1 1 1 

Nominal  Damages 130 

Non-Delivery  of  Acceptance.  . .  63 

Offer  and  Acceptance 60 

of  Performance 97 

to  Contract 62 

Oral  Contracts ,  Effect  of 29 

Testimony 81 

Ouster  of  Courts 33 

Parties  Bound  in  Contracts ....  23 
Payments,     Practical     Sugges- 
tions   119 

Penalties  in  Contracts 131 

Performance,  Exoneration  from  128 

Impossible 45, 46,  98 

of  Contract 94 

or  Damages 96 

Offer  of 97 

Specific 95,96 

Substantial 99, 100 

Summary  of 103.  104 

Tender  of '    97 

Perform,  Failure  to 122 

Place  of  Making  Contract 89-91 


Practical  and  Equitable  Con- 
tracts          16 

Suggestions  on  Extras 1 19 

Price  of  Extras 120 

Principal  Rule  of  Construction.       81 

Proof  of  Consideration 48 

Proposals  for  Work 66 

Public  Notices 66 

Offers 66,67 

Policy  Defined 33 

Quantum  Meruit 100, 128,  129 

Quasi-Contracts 129 

Question  of  Consideration  ...  110,  111 
Reasons    for    Unfair    Require- 
ments          16 

Receipt  of  Revocation 65 

Relative  Importance  of  Parts.  .       83 

Remedies  for  Breach 128 

Remote  Damages 130 

Rescind,  Agreements  to 107 

Revocation  of  Contract 65 

of  Public  Offer 67 

Right  to  be  Heard  in  Court. ...       33 

Rules  of  Construction 80 

Satisfaction  of  Owner 84 

Seal  49 

Sealed  Instruments 112 

Severable  Contracts 101, 102 

Sound   Interpretation   of  Con- 
tracts        19 

Specific  Performance 95,  96 

Statute  of  Frauds 29 

Statutory  Debt  Limit 25 

Substantial  Performance 99,  100 

Suit  for  Breach 129  (3) 

Summary  of  Conditions 79 

of  Performance 103, 104 

Sunday  Laws 28 

Supplemental  Contracts 112, 113 

Suspension,  Breach  by 124, 125 

Surety  Bonds 31 

Technical  Terms  in  Law 22 

Use  of 81 

Tender  of  Performance 97 

Transit  Case 69 

Unconditional  Acceptance 64 

Undue  Influence 59 

Unit  Prices  and  Extras 120 

Universal  and  Uniform  Usage. .  86, 87 

Unjust  Enrichment 129 

Usage  and  the  Common  Law. . .       85 

Waiver 107 

Weight  of  the  Parts 83 

Withdrawal  of  Offer 65 


315 


INDEX 


C  on  tract-Writing 

Figures  refer  to  Section  Numbers,  not  pages. 


Additional  Plans 420 

Aim  in  Specifications 452 

Ambiguity  and  Inconsistency . .     455 
Amer.  Ry.  M.  W.  Assn.,  Report 

on  Uniform  Contracts 409 

Analysis  of  Examples  Necessary 

466,  467 
Analyze  Principles,  Purpose  of 

Book  to 468(6) 

Anticipated  Profits 424 

Anticipatory  Breach 418 

Arbitration 433,  487-9 

Argument  for  Studying  Con- 
tracts      441 

Arrangement  of  Clauses 394 

Ashlar  Masonry ".     484 

Assignment  of  Contract 145,  428 

Attestation  Defined 411  (7) 

Bad  Specifications,  Omissions  .     454 
Bankruptcy  of  Contractor.  ....     432 

Bond  for  Performance 432 

Brevity 459  (2) 

Building  Agreement 443 

Bulkiness  and  Ambiguity 405 

Businesslike  English 392 

Business  Principles  in  Contract- 
Writing 399 

Cement 482 

Central  Purpose  must  be  Stated     467 

Changes  or  Alterations 32,109,424 

Checking  Documents 444 

Coffer  Dams 478 

Company's  Protection  and  Se- 
curity'       432 

"  Compiling  "  Specifications.  . .     453 
Components  of  Contract  Forms     410 

Concrete  Masonry 483 

Conduct  of  Work 423 

Conflict    between     Plans     and 

Specifications 420 

Conformity  to  Plans 419 

Contents  of  General  Conditions 

412  (b),  413 

of  Specifications 451 

Contract,   Uniform  Amer.   Ry. 

M.  W.  Report 409 

Assignment  of 145,  428 

Duration  of 418 

Fairness  in 427 

Forms,  Components  of. ...     410 

Forms,  Uniform 409 

Includes  Specifications. ...     391 
Law  Applies  to  Engineering 

Contracts 408 

Principles,    Argument    for 
Studying 441 


Contract — Con. 

Qualifications     for     Inter- 
preting      453 

Scope  of.... 445(3) 

Severity  of  Task  in  Draw- 
ing      404 

Spirit  and  Intent 417-420 

Understanding  the 414-416 

Writing,  Business  Principles 

Necessary 399 

Writing,  Engineer's  Prep- 
aration for. 398 

Writing,  Importance  of 404 

Writing,  Planning 403 

Contracts,  Practical  Conclusions 

on  Contents 403 

Language  to  be  Used 392 

Limitations  of  Uniform.  .413, 442 
Notebook  Method  of  Study- 
ing      467 

Standardizing 461-463 

Contractor,  Bankruptcy  of 432 

Delinquency  of 431 

Notices  to  the 423 

Responsibility  of 414 

Sub- 428 

Contractor's  Errors 426 

Plant,  Use  of 431 

Risks  and  Obligations 426 

Understanding 414 

Copying  Provisions  Inadequate 

468  (a) 
Covenants   and   Specifications, 

Contents  of 402 

"General"   Clauses,   Con- 
tents of 401 

Defective  Work 422,474  (15) 

Definiteness 460  (3) 

Definition  of  Terms 435,  445  (4) 

Delinquency  of  Contractor. ...     431 

Disputes  and  Arbitration 433 

Documents    "  Signed   and   At- 
tached " 407 

Drawings 446 

Duration  of  Contract 418 

Duties  of  the  Engineer 438 

Earth  Excavations 479 

Engineer  and  Legal  Assistant. .     391 

Duties  of  the 438 

Final  Decision  by 439 

Engineer's    Estimate,    Respon- 
sibility      415 

Engineer     Furnishes    Specifica- 
tions      391 

Importance    of    Contract- 
Writing  to 404 


316 


INDEX 


Figures  refer  to  Section  Numbers,  not  pages. 


Engineer — Con. 

Overzeal  of  400 

Powers  of  the. 420,  421,  433,  438 
Engineering  Practice,  Standard     470 

Engineer's  Authority 490 

Duty  to  Prevent  Lawsuits .     400 
Preparation   for  Contract- 
Writing. 398 

English  Practice  Adopted 462 

Errors  and  Omissions 419 

Exact  Language    in   Specifica- 
tions  449,460(1) 

Examples  of  Skeleton  Specifica- 
tions     471-2 

Exhibiting  Plans 407 

Extension  of  Time 418,  492 

Extras,  Ordering 440 

Written  Orders  for 425 

Extra  Work 425,451 

Failure  to  Comply  with  Terms.     431 

Fairness  in  Contract 427 

Familiarity  with  Details 468  (a) 

Final  Decision  by  Engineer.  . .  .     439 

Foundation  Piles 481 

General  Conditions  in  Building 

Agreement 443 

Practical  Suggestions  for.  .     409 
Clauses  in  Specifications.  .     465 
Clauses  or  Covenants,  Con- 
tents of 401 

Provisions  (Charles    River 

Dam) 474-6 

Guaranteeing  Estimates 415-421, 

Guaranty  of  Plans 419 

Identity  of  Document 406 

Implied  Warranty,  in  Specifica- 
tions      457 

Importance  of  Contract-Writing 

to  Engineer 404 

Impracticable  Requirements . . .  453 
Inconsistency  in  Specifications.  456 
Incorporation  by  Reference ....  405 

Physical 407 

Usefulness  of 405 

Words  of 405 

Indemnification 432 

of  Surety App.  15 

Language  of  Specifications .... 

392-6,459(1) 

Language  Used  in  Contracts .  . .  392 
Lawsuits  and  Bad  Specifications  400 

Legal  Questions  Involved 470 

Length  Immaterial 408 

of  Specifications 395 

Limitations    of   Uniform    Con- 
tracts  413,-442 

Lines  and  Levels 447 

Liquidated  Damages 496 


Lists  of  Headings,  Purpose  of. .  469 

Litigation 434 

Materials,  Workmanship 445  (2) 

Measurement  of  Quantities 421 

Mistakes  in  Plans 398 

Mode  of  Studying  Specifications  466 
Movement     toward     Standard 

Clauses 461 

Notebook  Method  of  Studying 

Contracts 467 

Notices  to  Contractor 423 

Omissions  in  Specifications 454 

Opening  up  Work. 491 

Ordering  Extras 440 

Outline  Examples,  Purposes  of  467 

Overzeal  of  Engineer 400 

Ownership  of  Materials 181,  422 

Parties  Described 411  (2) 

Payments 429,  494-5 

Physical  Incorporation 407 

Planning  Con  tract- Writing 403 

Plans  and  Specifications 419 

Poor    Specifications    Need    In- 
terpretation   458 

Powers  of  Engineer. .  .420-21,  433-38 
Practical  Conclusions  on  Con- 
tents of  Contracts 403 

Practical  Hints  on  Specifications  459 

Problems  Always  Different 468 

Proper  Agreement  Form 411 

"  Proper  and  Sufficient  " 460 

Purpose  of  Specifications 397 

Qualifications   for  Interpreting 

Contract 458 

Reasons  for  Imperfect  Specifica- 
tions   450 

Repetition  of  Words 396 

Repugnancy,  Discussed 413 

Responsibility  of  Contractor.  . .  414 

of  Engineer  for  Estimate .  .  415 

Rock  Excavations 480 

Schedule  of  Unit  Prices 430 

Scope  of  Contract 417,  445  (3) 

of  Specifications '.  452 

Settling  Disputes 433 

Severity   of  Task   in   Drawing 

Contract 404 

Simple,  Explicit  Language  Aids 

Court 393 

Skeleton  Specifications,  Reasons 

for 468 

Specifications 448 

(Charles  River  Dam) 478-84 

Aim  in 452 

Bibliography  of App.  20 

"Compiling'"' 453 

Conflict  between  Plans  and  420 

Contents  of 451 


317 


INDEX 


Figures  refer  to  Section  Numbers,  not  pages. 


Specifications — Con. 

Contents  of  Covenants 402 

Contract  Includes 391 

Engineer  Furnishes 391 

Examples  of  Skeleton 471-2 

Exact  Language 449,  460  (1) 

General  Clauses  in 465 

Implied  Writing  in 457 

Inconsistency  in 456 

Language  of 392-6,  459 

Lawsuits  and  Bad 400 

Length  of 395 

Mode  of  Studying 466 

Omissions  in.  T 454 

Plans  and 419 

Practical  Hints  on 459 

Purpose  of 397 

Reasons  for  Imperfect,. .  . .  450 

Reasons  for  Skeleton 468 

Scope  of 452 

Severity  Aimed  at  Dishon- 
esty    App.  18 

Subdivisions  of 464 

Supplement  Plans 449 

Up-to-date.. 397 

Warranties  in 456 

Specification  Writing  an  Art  397 

Difficulty  of App.  17 

Specific    Clauses,     and     see 

EXAMPLES  II  and  III . .     464  (6) 

Specific  Clauses  on  Concrete 

Work 501 

Erection  of  Steel  Work  .  502 
Mains,  Water  and  Gas .  .  50 1 
Maintenance    of    Struc- 
tures   498 

Old  Buildings 498 

Piles 500 

Sewers 501 

Stone  Masonry 501 


Specific  Clauses — Con. 

Statutory         Require- 
ments      App.  6 

Terminal  Tracks 503-5 

Waterproofing 502 

Spirit  and    Intent  of   Con- 
tract  417-420 

Standard  Clauses 486 

Engineering  Practice.  . .  470 

Standardizing  Contracts 461-463 

Subcontractor 428 

Subdivisions  of  Specifications          464 

Suggesting  Headings 469 

Superintending  the  Work  423,474  (7) 
Systematically  Planning 

Writing 403 

Termination  of  Contract. .  . .  493 

Time  of  the  Essence 411  (4) ,  418 

Extension  of 492 

Transportation 437 

Trouble   Breeders   in  Speci- 
fications    App.  19 

True    Economy    in      Good 

Specifications.  *. App .  1 8 

Understanding  the  Contract.  414-416 
Uniform  Contract  Forms  . .  409 

Uniformity  of  Treatment          460  (4) 
Unnecessary      Risks      Cost 

More App.  18 

Up-to-date  Specifications  . . .  397 

Usefulness  of  Incorporation  405 

Use  of  Contractor's  Plant ...  431 

Variation  in  Problems 468  (6) 

Warranties  in  Specifications.  456 

Implied 457 

Words  of  Incorporation 405 

Workmanship  and  Materials          422 
Writing       Systematically 

Planned 403 

Written  Orders  for  Extras  .  425 


Corporations 

Articles  of  Association 247 

Borrowing  by  City 264 

Capital  Stock  Defined 255 

Charter,  Acceptance  of 242 

is  a  Contract 242,  243 

to  be  Granted 242 

Close  Corporation  By-Law 262 

Common  and  Preferred  Stock.  .     257 
Confidential  Relation  of  Part- 
nership  240  (c) 

Construing  the  Charter 248 

Contract  of  Membership 248,  256 

Corporations,  Civil,  Private.  . .  .      239 
Defined 238 


Corporations — Con. 

Dissolution 254 

Ear-Marks 241 

^  Essentials  of 242 

"Habit" 246 

Holding    Stock    in    Other 

Companies 262 

Implied  Powers 248 

Kinds  of... 239 

Officers  and  Trustees 252 

Powers  not  Possessed 250 

Promotion  of 244 

Residence  of 238 

and  Partnerships  Comp . .  .  240 


318 


INDEX 


Figures  refer  to  Section  Numbers,  not  pages. 


Debt  Limit  of  City 264 

no  Defense  in  Tort 264 

Delectus  Personalis 240 

Director's  Liability 245-261 

" Distinct  Entity"  Theory .238,  240(6) 

Dividends,  Right  to 259 

Estoppel  Defined 249  (4) 

Fire  Departments 264 

Full-Paid  Stock 257 

Incorporation 246 

under  General  Statutes 247 

Incorporators  as  Copartners.  .  .     245 

Increasing  Capital  Stock 258 

Kinds  of  Stock 257 

Liability,  Director's 245-261 

in  Tort 253 

of  Municipality  in  Tort.  . .  .      265 

of  Stockholder 240  (3),  260 

Municipal  Corporations 263 

Charter  Powers 264 

Municipality,   Changing   Street 

Grades 265 

Unsafe  Streets 265 

Negligence  of  City  Officials 264 

Non- Assessable  Stock,  Meaning 

of 257 

Non-compliance  with  Statute  . .     245 
Other  Forms  of  Association.  ...      241 

Partner  and  Shareholder 240  (2) 

Partnership  Rests  on  Contract.  240  (a) 


Promoter's  Responsibilities.  . . .  244 

Promotion 244 

Public  Corporations 263 

Parks 264 

Right  to  Transfer  Stock 262 

Sewers 265 

Special  Statutory  Liability 260  (6) 

Stock  and  Capital 255 

Certificate 257 

Common  and  Preferred 257 

Full-paid 257 

Holder's  Liability  ...  240  (3) ,  260 

Increasing  Capital 258 

Kindsof 257 

Meaning  of  Non-Assessable  257 

Ownership,  Incidents  of .  .  .  259 

Subscriptions 245 

Subscription,  Unpaid 260  (a) 

Transfer,  Mode  of 262 

Watering 258 

Subscription  for  Capital 245 

Surplus,  Rights  in 259 

Theory  of  Corporate  Powers ....  243 

Transaction  of  Business 251 

Transf erability  of  Shares 240 

Ultra  Vires  Denned 248 

Modern  View 249 

Status  of  Contract 249 

Unpaid  Stock  Subscription  . . .  260  (a) 

Water  Supply  of  City 264 


Introduction 


Analysis  of  Engineering  Profes- 
sions   

Argument  for  Business  Study. . .  6 

Authorities  Quoted 15 

Business,  Argument  for  Study 

of 6 

Contracts  Underlie 11 

Engineer  Must  Understand  4 

Fields,  Engineering- 8,  9 

Man,  Training  of 

Men,  Responsibilities  of 6 

Training  for  Engineers 6 

Commercial  Engineers 10 

Contracts  of  Business 13 

Cost  Data,  Study  of 

Duties  of  Engineer 5 

Duty  of  Engineering  Schools.. .  .  7 

Economical  Buying 

Engineer,  Business  Training  for.  6,  7 

Duties  of 5 

Managerial  Positions  for...  2 


Engineering-Business  Fields 8,9 

Industrialism  and 3 

Professions,  Analysis  of 1 

Salesmen 9 

Schools,  Duty  of 7 

Engineers,  Commercial 10 

Relation  to  Society 2 

Successful  Commercial 4 

Ignorance  of  the  Law 15 

Importance  of  Business  Study 

to  Engineers 1 

Industrialism  and  Engineering. .  3 

Legal  Framework  of  Society 15 

Legal  Information  Required 5 

Managerial  Positions  for  Engi- 
neer  

Practical  vs.  Theoretical  Studies  7 

Purchasing  Agent 8 

Purpose  of  This  Book 12 

Responsibilities  of  Business  Men  6 

Training  of  " Business  Man" 4 


319 


INDEX 


Miscellaneous 

Figures  refer  to  Section  Numbers,  not  pages. 


Abandonment App.  7 

Accidents 160  (5) 

"Action  on  The  Case" App.    8 

Actual  Damages App.   9 

Adverse  Possession 204 

Arbitration — see  Contracts,  etc. 

Clauses,  Court's  Position     App.  2 
Assignment  of  Contracts.  .  . .  145 

Bad  Faith  of  Engineer App.  4 A 

Bailment 294 

Bibliography     of    Specifica- 
tions    App.  20 

Bill  of  Exchange 390 

Blanket  Clauses  Condemned  App.  18 

Buying  Supplies 8 

Breach,  see  Contracts. 

by  Abandoment App.  7 

Time  Limit App.  5 

Certification  by  Engineer  .  . .  App.  4A 

Changes,  Affect  Surety App.  15 

City  as  Riparian  Owner.  .  .  .  App.  11 

Clear  Language App.  17 

Common  Law 21, 155,   App.   7 

Conditions,     see     Contracts 

and App.  4,  and  4A 

Consignment 294 

Corporate     Form,     Advan- 
tages in App.  22 

Cost-Plus-a-Fixed-Sum  Con- 
tracts   . .  App.  16  (3) 

Damages  in  a  Compromise  .  .     App.  9 

of  Contractor App.  7 

Deeds — see  Property. 
Delivery — see  Sales,  Carriers, 

Neg.  Paper,  etc. 
Discharge — see  Contracts. 

of  Surety App.  15 

Dissolution,  see  Partnership 

and  Corporations. 
Distribution  of  Firm  Assets  App.  14 

Distinct  Entity 238-240  (6) 

Double  Profits App.  16  (a) 

Easements — see  Property. 

Electrolysis App.  10  and  Torts 

Eminent  Domain 235 

Estates — see  Property. 

Estoppel 139,  249 

Extras — see  Contracts. 

Desired  by  Contrac- 
tor    App.  16  (a) 

Affect  Time  Limit  .  .  App.  16  (a) 

Fault  of  Owner App.    5 

Final  Accounting,  Partn'p  .  .   App.  14 
Fraud — see  Sales,  Torts, 
Contracts,  etc. 

on  Surety App.  15 


Free  Passes  Discussed App.    3 

Good  Faith  of  Partner App.  14 

Goods — see  Sales. 

Identity  of  Interests App.  16  (c) 

Incomplete    Performance  .  .  .   App.  7 

Indemnity  for  Surety App.  15 

Indirect  Damages App.    8 

Insolvency 317 

Lateral  Support — see  Property. 

not  an  Easement App.  12 

Liquidated  Damages  .  .  .  .App.   9,  496 

Local  Ordinances App.    6 

Lump-Sum  Contracts ...  App.  16  (1) 
Manipulation    of    Specifica- 
tions    App.  18 

Mistake — see  Contracts  and  App.  4A 
Modern  Technical  Problems.   App.    1 
Monuments — see  Property. 
Negligence — see   Torts,   etc. 

of  Carrier App.    3 

in  Lateral  Support App.  12 

Notes — see  Neg.  Paper. 

Nuisance 191-2 

Ouster  of  Jurisdiction App.  9 

Owner's  Risks App.  16  (c) 

Passenger  Case App.    4 

Payments 494,  App.  21 

Penalties App.    9 

"Percentage"  Contracts. .  App.  16  (2) 

Political  Contractors App.  19 

Prescription — see  Property. 

Proximate  Cause 159 

Public  Policy App.    3 

and    Liquidated    Dam- 
ages   App.    9 

Railroad  Passes App.    9 

Ratification 142 

Refusal  of  Offer App.    4 

Relation  of  Surety  to  Spec's.    App.  15 

Remote  Damages App.    8 

Reservoir  Sites,  Damages  . .   App.    8 

Retaining  Percentages 495 

Schedule  of  Prices App.  17 

Sewage  Disposal — see  Prop- 
erty, and App.  1 1 

Sewers 265 

Specifications,   Bibliography 

of App.  20 

Statutory  Regulations App.    6 

Street  Ry.  and  Returns App.  10 

Subletting 485 

Subrogation  of  Surety App.  15 

Suretyship App.  15 

Surveyor,     Duties     of — see 
Property. 


320 


INDEX 


Figures  refer  to  Section  Numbers,  not  pages. 


"Taking"     Property,    Com- 
pensation   App.  10 

Time  of  the  Essence App.    5 

Trouble  Breeders App.  19 

True     Economy     in    Good 

Specifications App.  18 


Types  of   Engineering  Con- 
tracts    App.  16 

Unloaded  Soil  Supported  . . .   App.  16 

Waiver 107,  174 

Warranty — see  Sales,  Agency,  etc. 
Water — see  Property. 


Negotiable  Paper 


Accommodation  Paper 373 

Party 373 

Agent,  Paper  of 362 

Alteration  Discharges  Indorser.  377 

Alterations  in  Paper 371 

Bank's  Duty  as  to  Checks 385 

Bearer,  Payable  to 359-361 

Bill  of  Lading 390 

Blank  Indorsement 375 

Bonds,  Essentials,  Uses,  etc.  388,  389 

Cancellation  of  Paper 371 

Cashing  Checks,  Rules 385 

Certainty  of  Person 360 

of  Sum 357 

Certified  Checks 386 

Chain  of  Credits 378 

Checks 382 

Consideration  for  Note 373 

Delivery 368,  369 

in  Escrow 369 

Destruction  of  Paper 371 

Determinable  Time,  at  a 358 

Dishonor 372 

Effect  of  Dishonor 372 

Essentials  to  Negotiability ....  356 

Fictitious  Person,  Payable  to. .  361 

Fiduciary's  Paper 363 

Fraud  in  Signing 367 

"  Holder  in  Due  Course  " 367 

of  an  Office.. 360 

Indorsement,  Contracts  of 374 

Indorsements,  The 375 

Indorser's  Discharge 378 

Liability 374 

Warranties 376 

Intent  in  Signing 364 

Joint  Signing 366 

Judgment  Note 380,  381 

"  Law  Merchant  " 354 

Letter  of  Credit 390 

Lost  Check 383 


Maker's  Discharge 371 

Liability 370 

Negotiability 355 

Rules  for 356 

Words  of 359 

Negotiable  Instruments 354 

Who  Can  Make 362 

Negotiable  Paper  Defined 355 

Transferring  Title  of 355 

Payable  on  Contingency 358 

"  Payable  on  Demand  "    358 

to  Cash 361 

to  Fictitious  Person 361 

Payee  of  Check  Identified 382 

Payment  by  Indorser 377 

Presentment  of  Check,  Time  of.  383 

of  Note 379 

Time  and  Place  for 379 

Principal  Debtor,  Maker  is 370 

Prior  Holder,  Agreement  with.  377 

Promises  Absolutely,  Maker.  . .  370 

Protest,  Effect  of 384 

Purpose  of  Rules 378 

Restrictive  Indorsement 375 

Security  of  Certified  Checks 387 

Signing  by  Agent 362 

Firm  Name 365 

Hand  of  Another 365 

in  Principal's  Name 362 

Jointly 366 

Negotiable  Instruments  .  362-364 

Retiring  Partner,  Binds .  . .  365 

Trade  Name 365 

Special  Indorsement 375 

To  Holder  or  Bearer 359 

To  Order 359 

Trustees,  Paper  of 363 

Unconditional  Promise 357 

Usages  of  Trade,  Universality  of  354 

"  Without  Recourse  " 375 


Partnership 


Agreement  Basis  of  Joint  Stock 
Company 292 

Antagonistic  Interests  of  Part- 
ners   285 

Articles  of  Partnership 268 


Attachment  of  Partner's  Inter- 
est   282 

Bankruptcy  of  Firm 281 

Capital  of  Special  Partner 288 

Causes  for  Dissolution 274 


321 


INDEX 


Figures  refer  to  Section  Numbers,  not  pages. 


Certificate  in  Special  Partner- 
ship   287 

Corporation    and     Partnership 

Distinguished 280 

Death  of  Partner 270 

Delects  Personalis 285 

Dissolution  of  Joint  Stock  Com- 
panies   293 

of  Partnership 274 

Dormant  and  Silent  Partners . . .  276 

Duration  of  Partnership 274 

Duties  of  a  Partner 285 

Duty  upon  Dissolution 275 

Estoppel,  Partnership  by 270 

Evidence  of  Partnership 271 

FirmName 273 

General  Agent ,  Partner  is 277 

and  Special  Partners 276 

Good  Faith  of  Partners 285 

"Goodwill"  of  Firm 273 

"HoldingOut" 269 

Implied  Authority  of  Partner. . .  277 
Incorporated  Joint  Stock  Com- 
panies   292 

Intention,  Test  of  Partnership . .  271 

Joint  and  Several  Liability 279 

Joint-Enterprise   and   Partner- 
ship   272 

Joint  Stock  Companies,  Char- 
acteristics of 290 

Dissolution  of 293 

Incorporated 292 

Transferability  of  Stock. . .  .  290 

Kinds  of  Partners 276 

Liability  in  Joint  Stock  Com- 
pany  , 291 

Limited  Partnerships 286 

Limits  on  Partner's  Power 278 

Losses,  How  Shared 272 

Name  of  Firm 273 

of  Special  Partnership 289 

Negligence  of  Partner 285 

Notice  and  Firm  Name 273 

Objects  of  Special  Partnership...  286 

Origin  of  Partnerships. 266 

Partner,  Capital  of  Special 288 

Death  of 270 

Implied  Authority  of 277 

Negligence  of 285 

Notice  by  Retiring 269 

Who  can  be  a 267 


Partner's,    Antagonistic   Inter- 
ests   285 

Duties 285 

Equity 283 

Interest 282 

Liability 279 

Lien 283 

Powers 277,278 

Recompense 284, 285 

Partners,  Dormant  and  Silent.. .  276 

General  and  Special 276 

Good  Faith  of 285 

Kinds  of 276 

Protection  against 283 

Partnership    and     Corporation 

Distinguished 280 

Articles 268 

by  Estoppel 270 

by  Implication : 269 

Certificate  in  Special 287 

Defined 267 

Dissolution 274-281 

and  Joint  Enterprise 272 

Duration  of 274 

Evidence  of 271 

Name  of  Special 289 

Objects  of  Special 286 

Property 273 

Representation  as  Basis  of .  270 

Special 286 

Test 271 

Partnerships,  Limited 286 

Origin  of 266 

Prior  Dealers,  Notice  to 281 

Profits 272 

Protection  against  Partners ....  283 

Realty  of  Partnership 273 

Recompense  of  Partner 284, 285 

Representation    and     Partner- 
ship   270 

Retiring  Partner,  Notice 269 

Sale  of  Partner's  Interest 282 

Secret  Profits 285 

Sharing  Profits 272 

Special  Partnerships 286 

Termination  of  Liability 281 

Test  of  Partnership 271 

Torts,  Partnership  Liability 280 

Transferability  of  Stock 290 

Who  may  be  a  Partner 267 

Winding-up  Business 275-285 


Property 

Abstract  of  Title 218      Archaic  Language  in  Deeds 215 

Accretion 232      Assertion  of  Title 206 

Adverse    Possession,    Elements  Boundary  Trees 225 

of 204, 205      "Clouded"  Title 218 

322 


INDEX 


Figures  refer  to  Section  Numbers,  not  pages. 


Condemnation  Proceedings 236 

Control  by  Monuments 222 

Conveyancing 214 

Covenants  of  a  Deed 216 

of  Warranty 216  (d) 

Dedication  of  Land  for  Streets...     233 

Deed,  Covenants  of 216 

Delivery  of 215(6) 

Essentials  of 215 

Executing 215(5) 

Parts  of 216 

Premises  of 216 

Deeds 203,214 

Archaic  Language  in 215 

Description  in 219 

Registry  of 215(6) 

Reservations  in 197 

Rules  for  Construing 220 

Warranty  and  Quit  Claim. .     217 

Definite  Channel 185 

Degrees  of  Ownership 195 

Descent  in  Fee  Simple 196 

Description  in  Deeds 219 

Disposal  of  Surface  Water. . . .  189,  209 
Dominant  and  Servient  Estates.     199 

Duties  of  Surveyor 226 

Easements  by  Prescription 208 

Creation  and  Extinction  of     202 

in  Water 208 

Easement  Defined 198 

Highway  Use 201 

is  Appurtenant  to  Land    199—20 1 

Eminent  Domain 235 

Encumbrances 216  (2) 

Estate  Defined 195 

for  Years 197 

Estates,  Horizontal 180 

in  Land 195 

Lesser 197 

Merger  of ". 202 

Essentials  of  a  Deed 215 

Examination  of  Titles 218 

Executing  a  Deed 215  (5) 

Extent  of  "Land" 180 

Fee  Simple  Defined 196 

Grant  Includes  What 224 

Highway  Use  as  Easement 201 

Historical  Certainty  of  Words.. .     215 

Horizontal  Estates 180 

Judicial  Functions  of  Surveyor  .     219 

Land 180 

as  a  Monument 227 

Modes  of  Acquiring  Title  in     203 

"Takings" 237 

Lateral  Support  of  Land 210 

Lesser  Estates 197 

Life-estate 197 

Materials  of  Construction 181 


Merger  of  Estates 202 

Mill  Pond 208 

Privileges ..  . .  .  J94, 208 

Modes  of  Acquiring  Title 203 

Monuments 221 

Nuisance,  Must  be  no 191, 192 

Obstructions  in  Water  Courses. .  193 

Ownership  of  Street 201 

in  Subterranean  Waters.. .  .  185 

in  Surface  Waters 187 

Parts  of  a  Deed 216 

Party  Wall 200 

Percolating  Waters 185 

Personalty 180 

Pollution       of       Underground 

Waters 186 

Premises  of  a  Deed 216 

Prescription  'and  Adverse  Pos- 
session    204 

Public   Policy,    Deed  Descrip- 
tions   220 

in  Construing  Descriptions.  229 

Quit  Claim  Deeds,  Legitimate.. .  217 

Railroads,  Surface  Waters 190 

Real  Estate 180 

Realty  becomes  Personalty 181 

Registry  of  Deeds " 215  (6) 

Reservations  in  Deeds 197 

Resurvey,  Rules  for 226 

Rights    of    Cities    in    Surface 

Water 190 

in  Surface  Waters 188 

Riparian  Owners 184 

Rules  for  Construing  Deeds ....  220 

Servitude 200 

Sewage  Disposal 192 

Squatter's  Title.. . 204 

Statute  of  Limitations 204-207 

Statutory  Dedication 234 

Street  Boundaries 230 

Stringing  Wires 224 

Supporting  Buildings 212 

Surface      Drainage,      Water 

Courses 189 

Surface  Waters  Defined 187 

Disposal  of 189, 209 

Ownership  in 187 

Railroad's  Duties 190 

Rights  of  Cities  in 190 

Rights  in 188 

Surveyor's  Duty 206 

"Tacking"  of  Title 204 

"Taking"  of  Land 237 

"Thread"  of  Stream 183 

Title,  Abstract  of 218 

Adverse  Possession 204 

Assertion  of 206 

by  Accretion 232 


323 


INDEX 

Figures  refer  to  Section  Numbers,  not  pages. 


Title — Con. 

by  Operation  of  Law 232 

by  Prescription 204-207 

"Clouded" 218 

Warranty  of 216  (4) 

Trade  Fixtures 182 

Understanding    of    Deeds    by 
Engineer 214 

Clnloaded  Land  to  be  Supported     211 


"Unreasonable"  Pollution..... .  .  191 

Vertical  Support  of  Land 213 

Warranty  and  Quit  Claim  Deeds  217 

Water 183 

Boundaries 231 

Courses 191 

Obstructions  in 193 

Waters,  Percolating 185 

What  Quantity  of  Land  Passes  .  223 


Sales 


Acceptance  of  Goods 303 

Appropriation,  By  whom 313 

Arrival  of  Goods 319 

Bailment  Defined 294 

Bill  of  Lading 321 

Binding  the  Bargain 305 

Buyer,  Insolvency 317 

Non-acceptance  by 323 

Remedies  of 324 

Carriage  Case;  a  Sale 301 

Carrier,  Delivery  to  a  .  .  314,  315,  339 

Caveat  Emptor 328 

Check,  Payment  by 341 

Common  Law  Sale 302 

Conditional  Sales 310 

Connecting  Carrier 320 

Consignment  Defined 294 

Constructive  Delivery. 304 

Continuous  Transit 320 

Contract  to  Manufacture 302 

Creditors,  Defrauding 332 

Damages  of  Buyer 325 

Defences  in  Fraud 327 

Delivery,  Constructive 304 

of  Goods 303,  339 

Symbolical 339 

to  a  Carrier 314,  315, 339 

Duration  of  Right  of  Stoppage.  319 

Effect  of  Stoppage 321 

Evidence  of  Fraud 331 

and  Statute  of  Frauds 299 

Examine  Goods,  Right  to. ...  303,  340 
Executed  and    Executory  Sales 

295,  298,  307 

Express  Warranty 336  . 

Formality  in  Sales 295 

Forwarding  Goods 320 

Fraud,  Defenses 327 

Evidence  of 331 

Illegality  and 326 

Inference  of 331 

in  Sales 326-329 

on  Vendor 331 

Proofof 329 

Fraudulent  Possession  of  Goods  331 

Sale,,  296 


Frauds,  Statute  of 299,  300 

General  Characteristics  of  Sales  295 

Goods,  Acceptance  of 303 

Arrival  of 319 

Delivery  of 303, 339 

Forwarding 320 

Fraudulent  Possession  of.  .  331 

not  in  Existence 298 

Payment  for 541 

Price  of 305 

Right  to  Examine 303, 340 

Wares  and  Merchandise.  .  .  300 

Illegality  and  Fraud 326 

Implied  Warranty 337 

Incompleted  Sale 308 

Incorrect  Quantity  Supplied.  .  .  339 

Indorsing  Bill  of  Lading 321 

Inference  of  Fraud 331 

Insolvency  of  Buyer 317 

Inspection  and  Warranty 336 

Installment  Sales 294 

Intention  of  Parties  in  Sales ....  309 

Jus  Disponendi 315,  316 

Latent  Defects 328 

Lien  of  Seller 322 

Manufacturing  to  Order 314 

Memorandum  of  Sale 306 

Mutuality  in  Sales 295 

Non-acceptance  by  Buyer 323 

Non-Compliance,      Statute     of 

Frauds 306 

Part  Payment  in  Sales 305 

Payment  for  Goods 341 

Pricepf  Goods 305 

Promissory  Note,  Payment.  ...  341 

Proof  of  Fraud 329 

Remedies  of  Defrauded  Party. .  327 

of  Buyer 324 

of  Unpaid  Seller 323 

Representation  and  Warranty.  330 

Re-sale  by  Seller 321,  323 

Rescission  of  Sale 327 

Re-vesting  of  Title 311 

Sales  Act  (Footnote) 294 

Sale  by  Non-Owner 296 

Example  of  (Carriage  Case)  301 


324 


INDEX 


Figures  refer  to  Section  Numbers,  not  pages. 


Sale— Con. 

Incomplete*:! 308 

Memorandum  of 306 

Rescission  of 327 

Sales  Act  (Footnote) 294 

by  Sample 338 

Common  Law 302 

Defined 294 

of  Unappropriated  Goods.  312 

on  Approval 31 1 

to  Defraud  Creditors 332 

Conditional 310 

Executed  and  Exec'  y. .  .303,  340 

Formality  in 295 

Fraud  in 326-329 

Fraudulent 296 

Installment 294 

Intention  of  Parties 309 

Mutuality 295 

Part  Payment 305 

Title  in  Credit 341 

Warranty 329 

Satisfying  the  Statute 303 

Seller  Protected 316 

Seller's  Lien 322 

Sending  Non-obligatory 340 

Separation  from  Bulk  I 312 


Signing  Memorandum 306 

" Something  to  be  Done" 308 

Specific  Appropriation 312,  313 

Statute  of  Frauds 299,  300 

Evidence  Required  by.  ...  299 

Non-compliance  with 306 

Satisfying 303 

Stoppage,  Duration  of  Right.  .  .  319 

Effect  of 321 

inTransitu 317,  318 

Suit  for  Price 323 

Symbolic  Delivery 339 

Technical  Elements  of  Fraud . . .  329 

Title  from  Non-Owner 297 

in  Credit  Sales 341 

Passes  when 307 

Re-vesting 311 

Transit,  Continuous 320 

Waiver  of  Lien 322 

Warrant  of  Manufacturer 337 

Warranty 335 

and  Inspection 336 

Express 336 

in  Sales 329 

or  Representation 330 

When  Does  Title  Pass 307 

"  Work,  Labor  and  Materials" . ,  300 


Tort 


Accord  and  Satisfaction 161  (2) 

Aim    in    "Independent"    Con- 
tractor   1 73 

Avoidance  of  Liability  by  Owner  173 

Bankruptcy  and  Tort 161  (5) 

Common    Law    Improved    by 

Statute 155 

Interprets  Statutes 155 

Complexities  of  Contract-Writ- 
ing   173 

Contract     and     Tort     Distin- 
guished   156 

Contracts    and     Specifications, 

Necessity  for 172 

Involve  Torts  and  Agency  .  172 

Contributory  Negligence 160  (6) 

Control  of  the  Work 1 75 

Damages  in  Tort 157 

Discharge  of  Tort 161 

"Due  Diligence" 164 

Electrolysis 168 

Engineering  School  Courses  in 

Contracts 172 

Engineer's   Duty   as   to   Negli- 
gence  ." .  165,  166 

Explosives,  Storage  and  Hand- 
ling   168 


Implied  Authority  and  Tort 171 

Important    Distinction,    Agent 

and  Independent  Contractor..     173 
Independent     Contractor     De- 
fined       172 

Inevitable  Accident 160  (5) 

Instrumentalities,  Tort  by 167 

Joint   Liability    of   Agent   and 

Principal 170 

Judgment  Discharges  Tort. ...  161  (3) 

Justification  in  Tort 160 

Kinds  of  Tort 158 

Liability  in  Tort,  Sources  of . . .  .      167 
of  Engineer  for  Negligence.     165 

License  in  Tort 160 

Malice 158 

Negligence 164 

Contributory 160  (6) 

Engineer's  Duty 165,  166 

Professional  Skill 165,  166 

Test  Questions 164 

Nuisance 163 

"Ordinary  Care" 171 

Personal  Responsibility 159 

Rights • 156 

Professional    Skill    and    Negli- 
gence  165,  166 


325 


INDEX 

Figures  refer  to  Section  Numbers,  not  pages. 

Proximate  Cause 159  Tort— Con. 

Public  Policy  and  Tort 160  (3)  Contracts  Involve  Agency 

Reason  for  this  Book 172  and.... 172 

Relation  of  Common  to  Statute  Damages  in 157 

Law 154  Defined 156 

of  Torts  to  Agency 169  Discharge  of ] »;  1 

Responded*  Superior 169  Implied  Authority  and.  ...  171 

Self-defense 160  (4)  Judgment  Discharges 161  (:>,) 

Sources  of  Liability  in  Tort 167  Justification  in 1  fX) 

Spirit  of  Engineering  Contracts .     174  Kinds  of 1  /is 

Statute  of  Limitations 161  (6)  License  in 160 

Statutes  may  Embody  Common  Negligence 164 

Law 155  of  Water  Companies 168 

Take  Precedence 155  Public  Policy  and 160  (3) 

"Studying"  Law 154  Relation  to  Agency LCJ 

Survival  of  Tort 161(4)  Sources  of  Liability 167 

Test  Questions  in  Negligence ...      164  Survival  of 16 1  (4) 

inTort 171  Test  Questions  in 171 

Tort  and  Contract  Distinguished    156      Trespass 162 

Bankruptcy  and 161(5)      "  Unwritten  "  Law 154 

by  Instrumentalities 167      Waiver  of  C 'on tract  Righto 174 


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